The European Union on Wednesday predicted that inflation in the euro zone would be lower than previously expected in 2024, although the single currency area's economy still faces risks from geopolitical tensions, including wars in Ukraine and Gaza. he warned.
The European Commission expects inflation to fall to 2.5% in 2024, down from its previous forecast of 2.7%, news that will be welcomed by the European Central Bank (ECB).
But the EU executive body said it still expected growth in the 20-nation eurozone to slow to 0.8% in 2024, unchanged from its February forecast.
The ECB has halted its aggressive interest rate hike campaign launched in response to Russia's 2022 attack on Ukraine. The central bank is widely expected to cut interest rates in June as falling inflation and rising borrowing costs hit the euro zone.
After Moscow's invasion, inflation reached record levels and energy costs soared, leaving Europe in a mad rush to find energy sources to replace Russia.
EU Economic Commissioner Paolo Gentiloni was upbeat, pointing to April EU statistics that showed euro zone economic growth of 0.3% in the first quarter of 2024.
“The EU economy recovered markedly in the first quarter, showing that it has turned a corner after a very difficult 2023,” he said.
But he warned Wednesday that “forecasts remain subject to high uncertainty, with downside risks increasing as two wars continue to escalate not far from home.”
– The sluggish German economy –
The committee also saw inflation continue to fall, reaching 2.1 percent in 2025, well within reach of the ECB's 2 percent target.
“Disinflation is expected to be driven primarily by non-energy products and food, but energy inflation will rise modestly and service inflation will decline only gradually as wage pressures ease,” the ministry said in a statement.
The EU is hopeful that next year will be better, but Brussels has revised its 2025 growth forecast for the euro zone slightly lower to 1.4% from the previous 1.5%.
“We expect growth to gradually accelerate this year and into next as private consumption is supported by falling inflation, a recovery in purchasing power and continued employment growth,” Gentiloni said.
The weak German economy has been a drag on the euro zone as a whole, and Wednesday's forecast did not paint a positive picture for the euro zone's economic powerhouse.
The committee forecast that Germany's growth rate in 2024 will be just 0.1%, down from its previous forecast of 0.3%.
France, the EU's second-largest economy, is doing well, with its growth rate expected to be 0.7% in 2024, but this has been revised downward from the previous forecast of 0.9%.
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