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Thu. Apr 25th, 2024

The European Commission announced on Thursday a downward revision of both its growth and inflation forecasts for the eurozone in 2024, citing escalating geopolitical tensions as a source of increased uncertainty for the region’s economy.

These forecasts, issued by the EU’s executive arm, underscore the ramifications of the European Central Bank’s interest rate hike campaign in the previous year. While the reduction in inflation to a projected 2.7 percent is welcomed, concerns arise over the sluggish growth forecasted at a mere 0.8 percent.

Despite maintaining interest rates in 2024 thus far, the ECB is anticipated to commence rate cuts later in the year due to decelerating consumer prices and a weakening eurozone economy. The surge in inflation following Russia’s invasion of Ukraine in 2022, which drove energy prices to unprecedented heights as Europe sought alternative power sources, has significantly impacted the forecast. The commission has accordingly revised its inflation projection downward from 3.2 percent, albeit remaining above the ECB’s two-percent target.

The commission’s revised growth forecast for 2024 for the eurozone, at 0.8 percent, marks a notable reduction from the previous estimate of 1.2 percent. With concerns lingering over the economy’s performance in the first quarter of 2024, there is a cautious outlook. However, Brussels anticipates growth to rebound to 1.5 percent next year, albeit amid lingering global uncertainties.

Executive Vice President of the commission, Valdis Dombrovskis, cautioned about the persisting geopolitical uncertainties, especially regarding the Middle East, which could potentially exacerbate the challenges faced by the eurozone economy. Despite these concerns, the commission expressed optimism that the expiration of energy support measures and trade disruptions in the Red Sea would not impede the long-term trajectory of falling inflation.

EU’s Economy Commissioner, Paolo Gentiloni, acknowledged the resilience exhibited by the European economy amid challenging conditions in the previous year. While projecting a more modest rebound in 2024 than previously anticipated, Gentiloni emphasized the expected gradual acceleration supported by diminishing price pressures, growing real wages, and a robust labor market.

The eurozone’s economic performance has been notably affected by Germany, its largest economy. The commission significantly revised its growth forecast for Germany downward to 0.3 percent for 2024, reflecting subdued investment growth and persistent labor shortages. However, a moderate recovery with a growth rate of 1.2 percent is anticipated for 2025. France, the second-largest economy in the EU, also faces a trimmed growth forecast of 0.9 percent for 2024, with a slightly downgraded projection of 1.3 percent growth for 2025.

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