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EU cuts inflation forecast for 2024 despite uncertainty

Wednesday's forecast did not present a much brighter picture for Germany, with growth of 0.1 percent expected in 2024
Wednesday's forecast did not present a much brighter picture for Germany, with growth of 0.1 percent expected in 2024 - Copyright GETTY IMAGES NORTH AMERICA/AFP CHIP SOMODEVILLA
Wednesday's forecast did not present a much brighter picture for Germany, with growth of 0.1 percent expected in 2024 - Copyright GETTY IMAGES NORTH AMERICA/AFP CHIP SOMODEVILLA
Raziye Akkoc

The EU on Wednesday predicted eurozone inflation to fall faster in 2024 but warned the single-currency area’s economy still faced risks from geopolitical tensions including wars in Ukraine and Gaza.

The European Commission expects inflation to fall to 2.5 percent in 2024, down from a previous forecast of 2.7 percent — news that will be welcomed by the European Central Bank (ECB).

But the EU’s executive arm said it foresaw lethargic growth of 0.8 percent in 2024 for the 20-country eurozone, unchanged from February’s forecast.

The European Central Bank (ECB) has halted its aggressive rate-hiking campaign launched in the aftermath of Russia’s 2022 assault on Ukraine.

The bank is widely expected to cut rates in June as inflation falls and higher borrowing costs take their toll on the eurozone.

“The last mile of the disinflationary process may be more challenging in the EU,” the EU’s economy commissioner, Paolo Gentiloni, said.

This “could lead monetary authorities to ease monetary conditions at a slower pace than currently expected by markets,” he added.

Inflation reached record levels after Moscow’s invasion sent energy costs soaring and forced Europe to hastily find alternative sources to Russia.

– ‘High uncertainty’ –

Gentiloni appeared upbeat, pointing to EU data from April that showed the eurozone economy grew by 0.3 percent in the first quarter of 2024.

“Now we believe we have turned a corner. We expect an uptick in growth this year and further acceleration next year. Meanwhile, inflation is set to fall further and reach the ECB target in 2025,” Gentiloni said.

But he warned the forecast faced “downside risks” from wars raging but also multiple elections around the world, including later this year in the United States.

For the entire 27-country European Union, Brussels expects growth of 1.0 percent in 2024 and 1.6 percent in 2025.

The EU is faring worse than the United States and China, which have both recorded stronger growth figures for 2023 and the first three months of 2024.

Public finances also remain under pressure in the single-currency area.

The debt-to-GDP ratio is seen remaining at 90 percent this year before rising to 90.4 percent in 2025, far above the 60-percent ceiling set by EU fiscal rules.

– Stagnating German economy –

The commission said inflation would also continue to decline and reach 2.1 percent in 2025, within touching distance of the ECB’s two-percent target.

“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,” it said in a statement.

The EU hopes next year will be better but Brussels slightly downgraded its growth forecast for the eurozone to 1.4 percent in 2025 from 1.5 percent previously.

“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,” Gentiloni said in a statement.

Germany’s ailing economy has been a drag on the eurozone as a whole and Wednesday’s forecast did not present a much brighter picture for the bloc’s economic powerhouse.

The commission said it expects Germany to grow by only 0.1 percent in 2024, a downgrade from its previous forecast of 0.3 percent.

Although the EU’s second biggest economy, France, is doing better with 0.7 percent growth expected in 2024, it was below a previous prediction of 0.9 percent.

AFP
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With 2,400 staff representing 100 different nationalities, AFP covers the world as a leading global news agency. AFP provides fast, comprehensive and verified coverage of the issues affecting our daily lives.

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