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. It 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.”
The growth forecast for all of 2023 was lowered to 0.3 percent from 1.4 percent expected in the previous forecast from July.
“The EU economy is at a turning point,” said Paolo Gentiloni, European commissioner for the economy.
“After a surprisingly strong first half of the year, the EU economy lost momentum in the third quarter and recent survey data point to a contraction for the winter," he told reporters in Brussels. "The outlook for next year has weakened significantly.”
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 percent over the next year.
Gas and electricity prices have soared as Russia has dialled back supplies to Europe to a mere trickle of what they were before the invasion of Ukraine. European officials say the cutbacks are energy warfare by Russia to punish EU member countries for their support for Ukraine, while state-owned supplier Gazprom has cited technical reasons and a refusal by some customers to pay for gas in rubles.
Inflation will peak later than expected, near the end of the year, and will lift the average rate to 8.5 percent for 2022 and to 6.1 percent for 2023 in the eurozone. That is an upward revision of nearly one percentage point for 2022 and more than two 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 percent this year to 7.2 percent next and a decrease to seven percent in 2024.
