The EU has raised its Eurozone Growth Forecast for 2023
The Eurozone economy will grow more than previously forecast in 2023 as the energy crisis eases and the Eurozone avoided recession this winter, according to the European Commission.
The economy of the 20 nations is now expected to expand by 0.9% instead of 0.3% as "favorable developments" helped it overcome the effects of Russia's invasion of Ukraine, the EC said, quoted by AFP.
Inflation is also expected to slow more than previously forecast.
"Continued diversification of supply sources and sharp decline in consumption have left gas storage levels above the seasonal averages of past years and wholesale gas prices have fallen significantly below pre-war levels," the EC said.
"Furthermore, the EU labor market continued to perform well, with the unemployment rate remaining at an all-time low."
Inflation is forecast to hit 5.6% this year, with the commission saying it looks like "the peak is now behind us" after October's record high of 10.6%.
Last year, the European Central Bank and its peers around the world undertook a series of interest rate hikes in an attempt to tame soaring inflation.
The EU executive warned that economic "headwinds, however, remain strong".
"Consumers and businesses continue to face high energy prices, and core inflation (core inflation excluding energy and unprocessed food) continued to rise in January," he said.
"As inflationary pressures persist, monetary tightening will continue, weighing on business activity and putting pressure on investment."
The European Commission left the Eurozone growth forecast for 2024 unchanged at 1.5%.
It forecast inflation next year to be 2.5%, still above the ECB's two percent target.
The Commission said that while uncertainty surrounding its forecast "remains high, risks to growth are broadly balanced".
"Domestic demand could turn out to be higher than forecast if recent declines in wholesale natural gas prices are passed on more strongly to consumer prices and consumption proves more resilient."
"However, a potential reversal of this decline cannot be ruled out in the context of ongoing geopolitical tensions."
Upcoming interest rate hikes
ECB chief Christine Lagarde said this month that "overall, the economy has proved more resilient than expected."
But she signaled that the ECB would "stay the course" with an interest rate hike in March.
There are growing signs that the Eurozone may have passed the worst of the economic shock, with inflation slowing from a peak in October and the zone on track for growth in late 2022.
The less gloomy data gave rise to hope that Russia's efforts to choke off key gas supplies to Europe may not cause the deep decline hoped for.
When Moscow cut supplies after its invasion of Ukraine, European governments stepped in to relieve consumers and businesses of the sharp price hike and rushed to fill their warehouses.
Wholesale gas prices are falling, and relatively mild winter weather means reserves have not been used as quickly as expected.
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