The EU Commission slightly raised its growth forecast for the current year and next on Monday.
(Photo: dpa)
Brussels Europe will probably be spared a recession – despite the war in Ukraine and the energy crisis. However, the continent threatens to fall further behind the more dynamic USA and China. An important reason for this is the sluggish economic development in Germany.
The EU Commission slightly raised its growth forecast for the current year and next on Monday. The Brussels authority expects an increase of 1.0 percent for 2023 and 1.7 percent for 2024. The European economy is in better shape than assumed in the autumn, said EU Economic Commissioner Paolo Gentiloni.
Germany, however, is at the bottom of the league in Europe with an expected mini-growth of 0.2 percent this year and 1.4 percent next year. Inflation also continues to weigh on the European economy, even if inflation is slowly fading. After 5.8 percent in 2023, the Commission expects a decline to 2.8 percent in the euro zone in 2024.
Inflation remains a concern
That would still be more than the two percent that the European Central Bank rates as price stability. The Commission is particularly concerned about core inflation adjusted for volatile energy and food prices.
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“More persistent core inflation could further constrain households’ purchasing power and force a stronger monetary policy response,” warns the Brussels authority. Above all, she sees the risk that banks could get into trouble as a result of the abrupt turnaround in interest rates and could destabilize the financial system.
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To get inflation under control, the Commission is calling on governments to exercise discipline on spending. “An expansionary fiscal policy course would further fuel inflation,” writes the authority. The International Monetary Fund (IMF) recently argued in a similar way, and Federal Finance Minister Christian Lindner provided arguments for the ongoing budget negotiations in Berlin. The FDP politician is resisting the spending requests of his cabinet colleagues.
The crucial question in the medium term is whether Europe will succeed in attracting investments in order to catch up with the USA and China. US President Joe Biden has sparked an investment boom with lavish subsidies for climate-neutral technologies. The state-controlled Chinese economy benefits from generous subsidies anyway.
The Commission has presented a European response with the Green Deal Industrial Plan, but the approval of Parliament and the member states is still pending. In the current year, Brussels only expects weak investment growth of 0.9 percent. The 2.1 percent expected for the coming year is also well below the average for the years 2014 to 2018.
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