FX.co ★ EU Projects Eurozone To Log Gradual Growth, Inflation On Track To Target

The European Commission has forecasted a steady growth for the euro area economy despite ongoing geopolitical risks, with inflation expected to align with targets.

In its latest Spring economic forecast, released on Wednesday, the Commission maintained its prediction that the single currency bloc will grow by 0.8 percent this year, consistent with the Winter interim forecast.

However, the growth outlook for 2025 has been slightly revised down to 1.4 percent from the previous 1.5 percent.

The European Union as a whole is projected to grow by 1.0 percent this year and 1.6 percent in 2025, with nearly all member states expected to return to growth in 2024.

Data released on Wednesday confirmed that the currency bloc exited a technical recession in the first quarter of 2024. Gross domestic product (GDP) grew by 0.3 percent sequentially, reversing declines of 0.1 percent in both the third and fourth quarters of 2023. Year-on-year economic growth improved to 0.4 percent from 0.1 percent, aligning with previous estimates.

The EU has identified private consumption as the main driver of growth, buoyed by rising real incomes. Exports and imports are also projected to grow over the period, while investment is expected to pick up more gradually, hampered by a contraction in residential construction.

Among the major economies, Germany's economy is anticipated to stagnate, with growth projected at a modest 0.1 percent this year, driven by domestic demand. Growth is expected to rise to 1.0 percent next year.

Spain’s GDP is projected to expand by 2.1 percent, with domestic demand being the primary growth driver. The real growth rate is expected to slightly decelerate to 1.9 percent next year.

France’s economic growth is forecasted to remain subdued at 0.7 percent this year following a significant slowdown in the latter half of 2023. However, thanks to looser financial conditions and lower inflation, France’s real growth is expected to gain momentum, reaching 1.3 percent in 2025.

Italy's GDP growth is expected to remain steady at 0.9 percent in 2024, the same as the previous year, as government-supported residential investment is replaced by investments in infrastructure and equipment. Growth is forecasted to accelerate to 1.1 percent in 2025.

Eurozone inflation is projected to continue easing throughout the forecast period. It is expected to fall to 2.5 percent in 2024 and 2.1 percent in 2025, down from previous estimates of 2.7 percent and 2.2 percent, respectively.

The Commission acknowledged that the final phase of the disinflationary process will be slower and more challenging, relying mainly on services prices, wage outlook, and productivity. Although inflation expectations have slightly edged upwards, they remain close to the European Central Bank's target. Unemployment rates are expected to remain broadly stable, with the jobless rate projected at 6.6 percent this year and 6.5 percent in 2025.