Eurozone Economy Remains On Course For Soft Landing As Inflation Dips And Growth Picks Up, Says EC

According to the European Commission’s latest forecast, the eurozone economy is still on track for a soft landing, with inflation predicted to decline more rapidly than previously anticipated and economic growth projected to pick up throughout the coming years. Gross domestic product is expected to grow by 0.8% in 2024 and 1.4% in 2025, nearly unchanged from previous projections made three months ago. Inflation is estimated to decrease to 2.5% and 2.1% in 2024 and 2025, respectively, down from previous estimates of 2.7% and 2.2%. The commission stated that “we expect a gradual acceleration in growth over the course of this year and next, as private consumption is supported by falling inflation, recovering purchasing power, and continued employment growth.” However, the commission cautioned that public debt is expected to increase slightly next year, necessitating fiscal consolidation while preserving investment. The IMF has recently urged governments to be more proactive in consolidating their finances as the economic recovery gains momentum. The European Central Bank has signaled that it is still on track to implement a first interest rate reduction in June, with additional measures anticipated later in the year. The size of these reductions is still being debated, although investors presently anticipate around three decreases in 2024. The EU economy began the year on a stronger footing than anticipated, growing 0.3% during the initial quarter of 2024. Despite this, inflation has been subsiding as supply shocks associated with the pandemic fade away. The commission highlighted that lingering worries at the ECB focus on wage increases that might fuel domestic price pressures. Over time, an improved outlook for worldwide commerce should aid the EU’s external demand for products, thereby improving the prospects for the struggling manufacturing sector. The fortunes of various sectors within the economy have been notably diverse, as services profit from increasing household purchasing power while manufacturers suffer from reduced international demand and high borrowing costs.