Brussels, 15 May 2024
Following broad economic stagnation in 2023, better-than-expected growth at the start of 2024 and the ongoing reduction in inflation set the scene for a gradual expansion of activity over the forecast horizon.
The European Commission’s Spring Forecast projects GDP growth in 2024 at 1.0% in the EU and 0.8% in the euro area. In 2025, GDP is forecast to accelerate to 1.6% in the EU and to 1.4% in the euro area. EU HICP inflation is expected to fall from 6.4% in 2023 to 2.7% in 2024 and 2.2% in 2025. In the euro area, it is projected to decelerate from 5.4% in 2023 to 2.5% in 2024 and to 2.1% in 2025.
Return to growth on the back of accelerating private consumption
According to Eurostat’s preliminary flash estimate, GDP edged up by 0.3% in both the EU and the euro area in the first quarter of 2024. This expansion, which was broad-based across Member States, marks the end of the prolonged period of economic stagnation that started in the final quarter of 2022.
Growth of economic activity this year and next is expected to be largely driven by a steady expansion of private consumption, as continued real wage and employment growth sustain an increase in real disposable incomes. A strong propensity to save is, however, still partially holding back private consumption.
In contrast, investment growth appears to be softening. Dragged down by the negative cycle of residential construction, it is expected to pick up only gradually. While credit conditions are set to improve over the forecast horizon, markets now expect a slightly more gradual path of interest rate cuts compared to winter.
Amid a resilient global economy, a rebound in trade is set to support EU exports. However, as domestic demand resumes in the EU, an acceleration in imports will largely offset the positive contribution of exports to growth.
Inflation to continue declining
HICP inflation has continued declining sharply from the 10.6% (year-on-year) peak recorded in October 2022 in the euro area. In April this year, it is estimated to have reached a two-year low of 2.4%.
Starting from a lower-than-expected turnout in the first months of this year, inflation is forecast to continue declining and reach target slightly earlier in 2025 than projected in the Winter interim Forecast. Disinflation is set to be mainly driven by non-energy goods and food, while energy inflation edges up and services inflation declines only gradually, alongside moderation in wage pressures. Inflation in the EU as a whole is expected to follow a similar path, though remaining slightly higher.
Labour market remains strong despite modest growth
Despite the slowdown in activity, the EU economy created more than two million jobs in 2023, with activity and employment rates of people aged 20-64 hitting new record highs of 80.1% and 75.5% respectively in the last quarter of the year. Many labour markets across the EU remain tight. In March, the unemployment rate in the EU stood at its record low of 6.0%. This robust labour market performance owes to both strong labour supply – supported, amongst other factors, by migration – and labour demand.
Employment growth in the EU is projected to ease to 0.6% this year, before moderating further to 0.4% in 2025. The unemployment rate in the EU is expected to remain broadly stable around its historical low.
In line with the expected continued disinflation, nominal wage growth in the EU has started to decelerate after peaking at 5.8% in 2023. Going forward, it is set to decelerate further.
Withdrawal of exceptional energy-support measures set to reduce government deficits
After a sizeable reduction in 2021 and 2022, the fall in the EU government deficit came to a halt in 2023 as economic activity weakened. The decline is projected to resume in 2024 (3.0%) and 2025 (2.9%) notably on the back of the phase-out of energy-support measures.
Amid higher debt servicing costs and lower nominal GDP growth, the debt-to-GDP ratio in the EU is set to stabilise this year at 82.9%, before edging up by around 0.4 pps. in 2025.
Increased uncertainty amid geopolitical tensions
Uncertainty and downside risks to the economic outlook have further increased in recent months, mainly stemming from the evolution of Russia’s protracted war of aggression against Ukraine and the conflict in the Middle East. Broader geopolitical tensions also continue to pose risks. Moreover, the persistence of inflation in the US may lead to further delays in rate cuts in the US and beyond, resulting in somewhat tighter global financial conditions.
On the domestic front, the decline of inflation may be slower than projected, possibly leading EU central banks to delay rate cuts, until the decline in services inflation firms. Furthermore, some Member States may adopt additional fiscal consolidation measures in their 2025 budgets – not currently factored into this forecast – which could impact economic growth next year. At the same time, a decline in saving propensity could spur consumption growth, while residential construction investment could recover faster. Risks associated to climate change increasingly weigh on the outlook.
Background
This forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of 25 April. For all other incoming data, including assumptions about government policies, this forecast takes into consideration information up until, and including, 30 April. Unless new policies are announced and specified in adequate detail, the projections assume no policy changes.
The European Commission publishes two comprehensive forecasts (spring and autumn) and two interim forecasts (winter and summer) each year. The two comprehensive forecasts cover a broad range of economic indicators for all EU Member States, candidate countries, EFTA countries and other major advanced and emerging market economies. The interim forecasts cover annual and quarterly GDP and inflation for the current and following year for all Member States, as well as EU and euro area aggregates.
The European Commission’s Summer 2024 Economic Forecast will update the GDP and inflation projections in this publication and is expected to be presented in September 2024.
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Quote(s)
The EU economy has held steady in the face of exceptional challenges over the past years and we can now look forward to a return to modest growth rates, picking up further in 2025. Labour markets continue to hold up well with high employment rates, and private consumption is up. However, the global landscape remains fraught with risks for the EU, with rising and persistent geopolitical tensions. In this volatile environment, it is crucial that we use all available levers to boost our resilience and competitiveness. First, Member States should focus on sustainable growth-enhancing reforms and investments in combination with more prudent fiscal policies, to bring down high debt ratios. Second, we must take every possible step to boost investment. NextGenerationEU is already playing an important role, but we can do much better to stimulate private investment – breaking down cross-border barriers and completing the Capital Markets Union remain essential. Third, we must continue to reap the benefits of our open trade model, including by concluding trade agreements with trusted partners.
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People
The EU economy perked up markedly in the first quarter, indicating that we have turned a corner after a very challenging 2023. We expect a gradual acceleration in growth over the course of this year and next, as private consumption is supported by declining inflation, recovering purchasing power and continued employment growth. Government deficits should inch lower following the withdrawal of almost all energy support measures, but public debt is set to increase slightly next year, pointing to a need for fiscal consolidation while protecting investment. Our forecast remains subject to high uncertainty and – with two wars continuing to rage not far from home – downside risks have increased.
Paolo Gentiloni, Commissioner for Economy
Source – EU Commission
Statement by EU Commissioner Gentiloni at the presentation of the Spring 2024 Economic Forecast
Let me begin with the five key messages from this forecast:
First,after a difficult 2023, economic activity rebounded in the first quarter of this year.Economic momentum is expected to gather pace over the coming quarters, leading to an annual growth rate for the EU of 1% this year and 1.6% in 2025.
Second, private consumption is set to drive the economic rebound, thanks to continued strength of the labour market and rising real wages, which should allow for a recovery in lost purchasing power.
Third, inflation has declined further since the start of the year and is set to continue easing, reaching the ECB’s target in the course of 2025.
Fourth, the general government deficit ratio in the EU is set to resume falling in 2024, while the debt ratio increases slightly in 2025.
And fifth, downside risks and uncertainty remain elevated, and they are mostly connected to the wars on our borders and in the Middle East.
In 2023, private consumption was particularly weak, growing by only 0.4%. Despite robust employment and wage growth, labour incomes barely outpaced inflation. Moreover, households saved a larger share of their disposable income – the EU saving rate, at 13.5% in 2023, remained well above pre-COVID readings.
Investment also contributed very little to growth, with weakness particularly noticeable towards the end of the year, especially in residential construction.
External demand did not provide much support either, weighed down by a sharp slowdown in global merchandise trade.
Last but not least, the slowdown in the pace of accumulation of inventories detracted almost 1 pp. from domestic demand.
Over the next two years, the picture for the European economy is set to improve.
Private consumption is set to be the main growth driver. It is projected to rebound to 1.3% growth this year and 1.7% in 2025. Continued employment growth and rising real wages should sustain disposable income. The expansion of private consumption is set however to be partially held back by a further uptick in the saving rate.
Despite broad stagnation in output, the EU economy created more than two million jobs in 2023. Labour supply was mainly lifted by immigration and the rising participation of women and older workers.
Activity and employment rates reached new highs while unemployment stood at its record low of 6.0%. Positively, unemployment continued falling in Member States recording the highest rates, resulting in a continued decline of dispersion across countries.
Worth noting is the fact that in 2023-Q3 employment rates in the EU reached record highs not only for native workers (71.2%), but also for workers from third countries (65.1%).
Going forward, employment growth is expected to be more subdued. After 1.2% growth last year, EU employment is projected to grow by 0.6% this year and 0.4% in 2025. The first quarter saw employment growth of 0.2% in the EU, according to Eurostat’s release just out. This still means that the EU economy should generate another 2.5 million jobs by the end of next year. Meanwhile unemployment should hover around its current record low.
Nominal compensation per employee expanded by 5.8% in 2023 in the EU, with a gradual deceleration in the second half of the year. It is projected to decelerate further but to remain above inflation.
As a result, workers are set to continue recouping lost purchasing power. By 2025, average real wages are projected to have fully recovered their 2021 levels, though this is not the case for all Member States.
Expectations for rate cuts across the world have been scaled back recently. Also in the euro area, markets now expect a more gradual pace of monetary easing than in winter.
The euro area short-term nominal interest rates is now expected to decrease from 4% to 3.2% by the end of the year and to 2.6% by the end of 2025 – with markets, as you know, expecting the first cut occurring in June.
This slight change in market views is mainly due to more persistent underlying inflationary pressures.
Bank lending has so far failed to rebound, due to some further tightening of credit standards, but especially lower corporate demand for loans. However, the expected easing of monetary conditions coupled with an economic rebound and lower indebtedness after years of deleveraging, should gradually revive credit flows.
Moreover, metrics of credit risk indicate improved investor sentiment for EU assets. Sovereign spreads narrowed further while European equities continued to increase.
Still, financial conditions in the EU remain relatively tight and are still weighing on growth – particularly on investment.
Overall investment is projected to remain very weak this year. It is projected to accelerate to 2% in 2025 with large differences across components.
Equipment investment is set to expand only marginally this year. The prolonged weakness in the manufacturing sector has left many plants operating below normal capacity, weighing on demand for equipment investments.
Non-residential construction investment is expected to remain resilient, largely reflecting government infrastructure spending with RRF support. And indeed, public investment in the EU is projected to keep increasing, from 3.5% of GDP last year to 3.6% in 2024 and 3.7% of GDP in 2025.
By contrast, housing investment is projected to continue contracting, as house prices continue to fall and still tight credit conditions dampen demand.
Global growth is projected to edge up from 3.1% in 2023 to 3.2% in 2024 and 3.3% in 2025. This is a marginal upward revision compared to the Winter Forecast.
The growth outlook for the US looks better than previously expected, mainly due to a strong end-of-2023 performance.
In China, a strong rebound in economic activity during the first quarter lifts its near-term outlook. However, the country’s structural impediments combined with its current growth model are expected to result in a slowdown, also posing challenges for the global and the EU economy.
Global trade growth is expected to rebound this year from the slump of 2023 and to strengthen further in 2025. Accordingly, EU exports of goods and services are expected to expand by about 1.5% this year and 3.3% in 2025. Imports are also set to rebound, implying a neutral or only marginally positive contribution to EU growth of net external demand in the two forecast years.
Almost all EU economies are expected to see positive growth – albeit moderate to say the least, in some cases – in 2024, and to experience a stronger pickup in activity in 2025.
A few words now on the largest EU economies.
In Germany, following a recession in 2023, economic activity is expected to stagnate in 2024. Domestic demand is set to pick up slowly this year and next, as real wage growth resumes. GDP is forecast to grow by a subdued0.1%in 2024, led by both private and government consumption, before picking up to 1.0% next year, led by consumption and a recovery in investments.
In France, growth is projected at 0.7% in 2024. Private consumption will be the main driver, as real wages bounce back, while investment is set to contract. In 2025, the economy is projected to keep gaining momentum on the back of a recovery in investment and lower inflation, with GDP expected to grow by 1.3%.
In Italy, growth is forecast at 0.9% in 2024. Economic activity remains supported by investments, while net exports contribute positively to growth. GDP is expected to expand next year by 1.1%, thanks to a recovery in consumption, following the strong contraction at the end of last year.
In Spain, economic activity is expected to grow by 2.1% in 2024 and 1.9% in 2025 driven by domestic demand and supported by a strong labour market. The implementation of the RRP is set to underpin investment growth over the forecast horizon.
In Poland,growth is forecast to rebound to 2.8% in 2024. Private consumption is expected to be the main driver, supported by rapidly rising wages, additional government social support boosting disposable income, improved consumer sentiment, and receding inflationary pressures. In 2025, real GDP is projected to increase by 3.4%.
Lastly, looking at the new candidate countries, Ukraine, continues to grapple with the impact of Russia’s war of aggression. In 2024, real GDPgrowth is projected at 2.9%. Based on our technical assumption that conditions for a gradual increase in early reconstruction efforts will be in place from early 2025, in this scenario, growth is forecast to pick up in 2025 and reach 5.9%.
Escalating hostilities in the Middle East have caused price volatility in the oil market since the start of the year. Stronger-than-expected growth in both China and the US in early-2024 pushed up oil prices. Since the end of April though, mostly after the cut-off date of this forecast, tensions on the oil market eased and prices declined. Still, oil prices are somewhat higher than in Winter.
The gas futures price curve is only marginally higher than assumed in Winter and way below the level that prevailed last Autumn. The futures curves point to a slight uptick in TTF gas prices, averaging EUR 31/MWh and EUR 35/MWh in 2024 and 2025, respectively.
As such, energy prices are not expected to be the strong disinflationary force that they were in the recent past.
Inflation in the first quarter of 2024 declined faster than we expected. It averaged 2.6% in the first quarter in the euro area, and is estimated to have reached a two-year low of 2.4% in April.
Going forward, we expect inflation to continue moderating, falling to 2% by the end of 2025.
Headline inflation in EU is expected to fall from 6.4% in 2023 to 2.7% in 2024 and 2.2% in 2025. This represents a downward revision of 0.3pp. in both years.
In the euro area, it is projected to decelerate from 5.4% in 2023 to 2.5% in 2024 and to 2.1% in 2025. This is 0.2 and 0.1 pps. below the winter forecast, respectively
While inflation moderation is projected to continue in all Member States, its pace differs widely across the EU.
Inflation is set to remain higher in central and eastern European countries, a pattern that has characterised our inflation maps since the beginning of the energy crisis.
Fortunately, as energy and food prices normalise, and average headline inflation in the EU moderates, so do intra-EU divergences. The dispersion of inflation rates within the EU is projected to decline in 2025 to historical levels.
After a sizeable reduction in 2022, the EU government deficit increased marginally last year, from 3.4% to 3.5% of GDP, as economic conditions deteriorated, and interest expenditure increased.
The almost complete phase-out of energy-related measures, lower subsidies for private investment, as well as the gradual improvement in economic activity are expected to lead to renewed deficit reductions on aggregate in the EU, to 3.0% and 2.9% of GDP in 2024 and 2025, respectively.
Overall, these developments imply a contractionary fiscal impulse in 2024 and a broadly neutral stance in 2025.
The EU debt-to-GDP ratio fell to 83% in 2023, from the record high of 92% in 2020. It is projected to remain stable in 2024 before edging up slightly to 83.4% in 2025 amid higher debt servicing costs and lower nominal GDP growth.
Budgetary developments are set to vary considerably. This reflects, among other things, different speeds at which energy support measures are being phased out.
In 2024, most Member States are still projected to see a deterioration in their general government balance while, based on unchanged policies, deficit reduction is set to be more broad-based across countries in 2025.
As in 2023, eleven Member States are projected to record a general government deficit at or above 3% of GDP in 2024. This number is forecast to drop to nine in 2025.
By the end of 2025, in most Member States debt-to-GDP ratios are projected to be lower than in 2020, but to remain above 60% of GDP in 12 countries.
Uncertainty and downside risks to the economic outlook stemming from the EU external environment have increased.
Global policy uncertainty is also high, in view of the unprecedented share of the global population going to the polls this year.
In this context, global trade and energy markets appear particularly vulnerable to uncertainty and potential policy reversal. Furthermore, a re-pricing of interest rates in the US would result in a tightening of global financial conditions.
On the domestic side, the fiscal and monetary policy stance could turn more restrictive than currently projected, with negative consequences for growth.
The last mile of the disinflationary process may be more challenging in the EU as well, which could lead monetary authorities to ease monetary conditions at a slower pace than currently expected by markets.
Finally, risks associated with climate change and the degradation of natural capital also increasingly weigh on the outlook.
Domestic demand could surprise on the upside. A decline in the saving propensity could spur consumption growth, while residential construction investment could recover faster.
Lastly, let me draw your attention to a special topic in the Spring Forecast which celebrates the 20thanniversary of the 2004 enlargement by taking stock of income convergence of the 10 then-acceding Member States.
Since the beginning of the accession process, the catch-up in real incomes by the acceding Member States has been impressive. It has also been resilient to the major crises that hit the EU in the past 20 years.
Expressed in purchasing power parities, GDP per capita of the 10 “new” Member States increased from 45% of the EU14 [the “old” EU Members excluding the UK] in 1997, when the accession process formally started, to 51% in 2004 at the time of accession, and then moved dramatically higher over the past two decades, reaching 79% in 2023.
Despite unfavourable demographic trends, total factor productivity and capital deepening should keep driving this convergence. Based on our 10-year ahead projections, these 10 Member States should further narrow the income gap with the “old” Member States over the next decade. In 2033 their average income levels should rise to 92% of that of the EU14. And this is I think also very good news for the countries I met yesterday – the finance ministers and central bank governors of the Western Balkan countries, Georgia, Moldova and Ukraine – which are all working towards joining the EU.
To sum up, 2023 was a challenging year for the EU economy. But now we believe we have turned a corner. We expect an uptick in growth this year and further acceleration in 2025. Meanwhile inflation is set to fall further and reach the ECB target next year.
Consumption is set to lead growth, while investment is expected to lag behind. In this context, NextGenerationEU is key to buffering weak private sector demand. And all of this in a context of high geopolitical risks and elevated uncertainty.
Now I am looking forward to your questions.
Source – EU Commission
Statement des EU-Abgeordneten Markus Ferber (EVP/CSU) zur Frühjahrsprognose
Heute hat die Europäische Kommission ihre Frühjahrsprognose für die wirtschaftliche Entwicklung vorgestellt. Der Sprecher der EVP-Fraktion im Wirtschafts- und Währungsausschuss (ECON) im Europäischen Parlament, Markus Ferber, erklärte dazu:
„Die Frühjahrsprognose der Europäischen Kommission zeigt, dass sich die europäische Wirtschaft nach wie vor in schwierigem Fahrwasser befindet. Der Grund für die Schwächephase ist eine Mischung aus externen Faktoren und hausgemachten Problemen. In den vergangenen Jahren hat die Kommission die Wettbewerbsfähigkeit der europäischen Wirtschaft sträflich vernachlässigt und stattdessen immer neue bürokratische Hürden aufgebaut – dafür bekommen wir nun die Quittung. Die Kommission darf nicht dabei stehen bleiben, die trüben wirtschaftliche Lage zu beschreiben, sondern muss auch aufzeigen, wie man wieder auf einen soliden Wachstumspfad kommt.
Man sollte sich von der leicht nach oben korrigierten Prognose nicht blenden lassen, denn es gibt massive strukturelle Probleme, die die Wachstumsaussichten der europäischen Wirtschaft zurückhalten. Die neue Europäische Kommission muss einen besonderen Fokus auf die Verbesserung der Wettbewerbsfähigkeit der europäischen Wirtschaft legen.
Der Umstand, dass Deutschland als größte Volkswirtschaft der EU der Bremsklotz für die wirtschaftliche Entwicklung in der gesamten Europäischen Union ist, ist auch ein Armutszeugnis für die Wirtschaftspolitik der Ampel-Koalition.“
Quelle – Markus Ferber (per E-Mail)