FLASH
Shkruar nga Pamfleti
The EU economy entered 2024 with low momentum.
The European Commission drastically lowered expectations for economic growth this year, warning of a difficult situation ahead.
After narrowly avoiding recession at the end of 2023, the European Union economy has entered 2024 with less energy than forecast, as confirmed by the European Commission in its latest winter economic forecast.
The new projections highlight a reduced growth outlook for the year, now expected at a modest 0.9% in the EU, down from the 1.3% previously expected, with the eurozone forecast similarly adjusted to 0.8% from 1.2% before.
Resurrection on the horizon
The Commission notes that a gradual recovery is on the horizon for the second half of 2024, bolstered by easing inflationary pressures, an expected rise in real wages and a robust labor market that is stimulating consumer spending.
An increase is expected in 2025, with growth forecast at 1.7% in the EU, unchanged from the autumn forecast, and 1.5% in the euro area, up from 1.6% previously.
Inflation is expected to moderate faster than previously forecast. Harmonized Index of Consumer Prices (HICP) inflation in the EU is set to fall faster from a whopping 6.3% in 2023 to 3.0% in 2024, falling further to 2.5% in 2025.
The euro area reflects this trend, with inflation rates forecast to slow from 5.4% in 2023 to 2.7% in 2024 and 2.2% in 2025. The 2024 inflation forecast for the euro area has been revised down from 3.2%, while 2025 is leave unchanged.
Investments are expected to receive a boost from improving credit conditions and the ongoing roll-out of the Recovery and Resilience Facility. Trade, which was weak last year, is expected to return to normal levels with foreign partners as well.
Imminent economic risks
Despite some encouraging signs, the European Commission remains alert to looming economic risks, including the phasing out of energy support schemes, persistent geopolitical frictions and potential escalation in Middle East conflicts affecting the Red Sea trade routes.
Falling inflation boosts expectations for monetary policy easing
The start of 2024 has seen some segments of the market report lower interest rates, signaling a possible inflection in bank lending volumes in the coming months after a sluggish year .
Markets are already pricing in a possible change in monetary policy from the European Central Bank (ECB), with expectations for a rate cut as early as the second quarter of 2024 and cumulative cuts close to 200 basis points over the forecast horizon.
However, the Commission warns of high volatility in interest rates, suggesting that markets are still facing uncertainty until the ECB commits to a defined path towards monetary easing.
Europe's economic power faces challenges
Germany's economic sentiment indicators remain troubling, with January figures hitting lows not seen since the COVID-19 crisis, suggesting weak economic activity for the first half of 2024.
After a 0.3% contraction in output in 2023, the German economy is expected to see only modest growth of 0.3% in 2024, a downward revision from the 0.8% previously forecast in the fall. The projection for 2025 remains constant with an increase of 1.2%.
Labor shortages represent a drag on economic activity, while a trade-led recovery is also unlikely amid stagnant export and import dynamics. On a more optimistic note, market funding conditions have eased recently, with expectations for continued easing facilitated by more accessible bank lending.
Lini një Përgjigje