The European Union upgraded its forecasts for growth in this year while predicting “modest contraction” of the British economy.
The European Commission’s spring forecasts have increased the predictions for growth in the EU from 0.8% in February to 1%, with persistent inflation being the biggest risk to the economy.
Contrary to European economies, Britain’s economy is expected to contract by 0.2 percent this year. According to estimates, Britain will still lag behind European economies by 2024.
The forecast from Brussels said that “the UK Economy will see a modest decline in 2023 as real household incomes continue falling, consumption and external demand are expected to soften and business investment remain weak.” In 2024, a mild recovery will be expected as inflation continues its downward trend and real wages and employment continue to rise.
Paolo Gentiloni is the EU’s Economy Commissioner. He said that “the European economy has done better than we expected.” We avoided a winter slump thanks to our determined efforts to improve energy security and to a resilient labour market.
Gentiloni warns that while lower energy prices than expected following Russia’s invasion in Ukraine have improved the outlook for growth, “downside risks have increased” particularly due to core inflation.
“Risks are too numerous for comfort, and Russia’s brutal invasion of Ukraine continues cast a cloud of uncertainty on the future.” “We must remain vigilant and be ready to respond to future shocks,” said he.
The eurozone inflation projection has also been raised, now being forecast at 5.8 percent in 2023, up from 5.6 percent in February.
The forecast stated that “as long as inflation continues to rise, the financing conditions will tighten even more.”
The recent turmoil in the financial industry is likely to increase the cost of credit and make it more difficult to access, thereby slowing investment growth, and affecting residential investment in particular.
The commission warned governments that “expansionary fiscal policies would fuel inflation even further”.
The forecast stated that “new challenges could arise for the global economic system as a result of the turmoil in the banking sector or wider geopolitical tensions.”
The more optimistic forecast from Brussels came after figures for March revealed a sharp drop in industrial production in the eurozone, with a contraction in capital goods production of 4,1%. This was on top of a 1,4% year-on-year decrease.