The European Union (EU) economy is showing signs of recovery in the first quarter of 2024, as inflation eases and private consumption rises, announced Paolo Gentiloni, European Commissioner for Economy, on Wednesday.
“The EU economy improved significantly in the first quarter, indicating that we have turned a corner after a very challenging 2023,” stated Gentiloni while presenting the European Commission’s Spring Economic Forecast.
“We anticipate a gradual acceleration in growth throughout this year and the next, supported by declining inflation, recovering purchasing power, and sustained employment growth,” he added.
According to the Spring Economic Forecast, gross domestic product (GDP) growth is projected to reach 1 percent in the EU and 0.8 percent in the eurozone in 2024. For 2025, the EU economy is expected to grow by 1.6 percent, while the eurozone’s economy should expand by 1.4 percent.
The first quarter of 2024, with a 0.3 percent economic growth in both the EU and the eurozone, marks the end of a prolonged period of economic stagnation that began in the last quarter of 2022, according to the European Commission.
The primary driver of economic growth over the next two years will be private consumption, bolstered by increasing real wages, which will enhance households’ real disposable incomes.
However, investment growth is expected to be hindered by a negative trend in residential construction and a slower-than-expected pace of interest rate cuts. Exports are anticipated to pick up but will likely be counterbalanced by imports due to growing domestic demand.
Meanwhile, inflation is projected to continue its downward trend. In the EU, inflation is expected to decrease from 6.4 percent in 2023 to 2.7 percent this year and further to 2.2 percent by 2025. In the eurozone, inflation is projected to fall to 2.5 percent this year and 2.1 percent next year.
Inflation peaked at 10.6 percent in October 2022 in the eurozone. In April this year, it reached a two-year low of 2.4 percent.
The disinflation process in the eurozone will be driven by a decline in the prices of non-energy goods and food. While energy inflation might rise slightly, the decline in services inflation will be gradual, along with a moderation in wage pressures. Inflation trends in the EU are expected to mirror those in the eurozone, as per the Commission.
Risks to this forecast include ongoing conflicts in Ukraine and the Middle East, and persistent inflation in the United States, noted the Commission. These geopolitical tensions and economic challenges could pose significant risks to the EU’s economic outlook.
