EU Commission expects economic contraction during first quarter of 2023 with inflation expected to reach peak at end of this year
The eurozone is likely to enter a recession in the last quarter of this year amid an energy crisis and inflation concerns, a European Commission report said on Friday.
“Amid elevated uncertainty, high energy price pressures, erosion of households’ purchasing power, a weaker external environment and tighter financing conditions are expected to tip the EU, the euro area and most member states into recession,” the report said.
“Broadening price pressures are expected to have moved the inflation peak to year-end,” it added.
The commission still expects that the economy will grow by 3.3% this year (3.2% in the euro area) – well above the 2.7% predicted in the Summer Interim Forecast.
Yet it also said that “as inflation keeps cutting into households’ disposable incomes,the contraction of economic activity is set to continue in the first quarter of 2023.”
“Growth is expected to return to Europe in spring, as inflation gradually relaxes its grip on the economy. However, with powerful headwinds still holding back demand, economic activity is set to be subdued, with GDP growth reaching 0.3% in 2023 as a whole in both the EU and the euro area,” the report said.
The commission predicted that headline inflation will be 9.3% in the EU and 8.5% in the euro area and that it will go down only mildly next year to 7% and 6.1%, respectively.
On the latest data, Economy Commissioner Paolo Gentiloni told reporters in Brussels that “the EU economy is at a turning point.”
He said the EU economy “lost momentum in the third quarter” and recent projections indicated a contraction for the winter.
“We expect the EU economy to contract in both the current quarter and the first quarter of 2023. This technical recession is set to be broad-based across demand components but also across countries, with a majority of member states experiencing two consecutive quarters of contraction,” he said.