The commission says high energy prices, a rising cost of living, higher interest rates and slowing global trade.
The European Union’s executive commission slashed its forecast for economic growth next year, saying the 19 countries that use the euro currency will slide into recession over the winter as peak inflation hangs on for longer than expected and high fuel and heating costs erode consumer purchasing power.
The European Commission’s autumn forecast released Friday predicts falling economic output in the last three months of this year and the first months of 2023.The commission says high energy prices, a rising cost of living, higher interest rates and slowing global trade “are expected to tip the EU, the euro area and most member states into recession in the last quarter of the year.”
Going forward, the growth forecast for all of 2023 was lowered to 0.3% from 1.4% expected in the previous forecast from July.
The worst performer next year is likely to be Germany, Europe’s largest economy and one of the most dependent on Russian natural gas before the war in Ukraine.
Germany was expected to see output shrink by 0.6% over the next year. Natural gas and electricity prices have soared as Russia has slashed gas supplies to Europe used for heating, electricity and industrial processes.
Inflation will peak later than expected, near the end of the year, and will lift the average rate to 8.5% for 2022 and to 6.1% for 2023 in the eurozone, the EU forecast said.
That is an upward revision of nearly 1 percentage point for 2022 and more than 2 points for 2023.Two consecutive quarters of falling output is one common definition of recession, although the economists on the eurozone business cycle dating committee use a broader set of data including employment figures.
The commission indicated the job market was likely to hold up relatively well despite shrinking output over the winter, forecasting an increase in the unemployment rate from 6.8% this year to 7.2% next and a decrease to 7% in 2024.
Gentiloni said the forecast was subject to risks from unexpected events like a complete cutoff of remaining Russian gas but that the economy could do better than expected if EU governments act together in dealing with the economy and the energy crisis.
The downbeat numbers “are not only subject to huge uncertainty, but crucially policy dependent,” Gentiloni said.
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