BRUSSELS – ANSWER. For his amazing resilience European economy, despite the challenges it has faced, especially the ongoing turmoil and in its shadow. energy crisis Finance Commissioner Paolo Gentiloni said during the presentation of the commission’s spring forecasts released today. However, he did not fail to warn of the persistence of high inflation and marked disparities among Member States. He stated that the fiscal stance of eurozone member countries would remain under close scrutiny, but also that the goal was to “maintain momentum”.

As for Greece, he said most of the data is positive, with growth projected for 2023 at 2.4% from 1.2%, which was winter forecasts and higher than the Eurozone average. “It would be difficult for me to present negative evidence,” said Paolo Gentiloni, when there are enough positives for Greece, while he mentioned that he also read reports in the foreign press that speak of an upward trend in the performance of the Greek economy. However, he also warned that there could be no complacency.

Growth revised to 2.4%

In particular, in relation to our country, the Commission has revised growth for 2023 to 2.4% from 1.2%, which it predicted in its winter forecasts, as well as a primary surplus of 2.5% of GDP and a further reduction in debt by 16. 4% of GDP at the end of 2024.

Moreover, GDP is projected to grow by 2.4% this year, despite a decline in private consumption from 7.8% in 2022 to 1.6%. The growth driver will continue to be the use of Recovery and Resilience Fund resources, leading to increased investment. Optimism is also being expressed regarding the recovery of tourism.

Looking ahead to 2024, economic growth is estimated at 1.9%, gradually approaching the country’s potential growth, with investment remaining a key driver of output growth, albeit at a slower pace than in the 2021-2023 triennium. supported by growth in real incomes.

For the European economy

In particular, a report released today showed that lower energy prices, easing supply restrictions and a strong labor market contributed to modest growth in the first quarter of 2023, dispelling fears of a recession.

This better-than-expected start to the year boosts the growth outlook for the EU economy. to 1% in 2023 (0.8% in the winter interim forecast) and 1.7% in 2024 (1.6% in the winter interim forecast).

Upward revisions for the euro area, which are similar in size to GDP growth, are now expected at 1.1% and 1.6% in 2023 and 2024, respectively.

Amid continued pressure, core price inflation has also been revised upward over the winter to 5.8% in 2023 and 2.8% in 2024 in the euro area.

In particular, the European economy managed to contain the negative effects of Russia’s war of aggression against Ukraine by overcoming the energy crisis thanks to a rapid diversification of supplies and a significant reduction in natural gas consumption. Significantly lower energy prices act through the economy, reducing production costs for businesses. Consumers are also seeing lower electricity bills, although private consumption will remain low as wage growth lags inflation.

As inflation remains high, funding conditions will tighten. While the ECB and other EU central banks are expected to be nearing the end of their rate hike cycle, the recent financial sector turmoil is likely to increase pressure on costs and ease of access to credit, slowing investment growth and particularly hitting housing investment. .

Core inflation has been revised upward but is expected to ease gradually

After peaking in 2022, headline inflation continued to decline in the first quarter of 2023 amid a sharp slowdown in energy prices. However, core inflation (headline inflation excluding energy and unprocessed food) appears to be more robust.

It hit a record high of 7.6% in March, but is forecast to ease gradually over the forecast horizon as profit margins offset higher wage pressures and funding conditions tighten. April’s eurozone harmonized consumer price index, released after the end date of this forecast, shows a marginal decline in core inflation, suggesting it may have peaked in the first quarter as forecast. On an annualized basis, core inflation in the euro area will average 6.1% in 2023 before falling to 3.2% in 2024, remaining above headline inflation in both forecast years.

The labor market remains strong

A strong labor market bolsters the resilience of the EU economy. The EU unemployment rate reached a new record low of 6.0% in March 2023, and participation and employment rates are high.

The EU labor market is expected to react little to the slowdown in economic growth. Employment growth is projected at 0.5% this year before slowing to 0.4% in 2024. The unemployment rate is forecast to remain just above 6%. Wage growth has accelerated since early 2022, but so far remains well below inflation. Wage growth is expected to last longer due to continued tightness in labor markets, large minimum wage increases in several countries and, more generally, pressure from workers to regain lost purchasing power.

The government budget deficit is expected to narrow, especially in 2024.

Despite the introduction of support measures to cushion the impact of high energy prices, strong nominal growth and an easing of the remaining pandemic-related measures have resulted in the overall EU government deficit falling further to 3.4% of GDP in 2022. In 2023 and an even sharper fall in energy prices in 2024, governments will be able to phase out energy support measures, further reducing the deficit to 3.1% and 2.4% of GDP, respectively. The EU total debt-to-GDP ratio is projected to fall steadily below 83% in 2024 (90% in the euro area), still above pre-pandemic levels. There is great heterogeneity in fiscal trajectories across member states.

While inflation may improve public finances in the short term, this effect will inevitably fade over time as debt service costs rise and government spending gradually adjusts to higher prices.

Downside risks to the economic outlook have increased

Stronger core inflation could continue to constrain household purchasing power and prompt stronger monetary policy action, with broad macroeconomic implications. In addition, new episodes of financial stress could lead to a further increase in risk aversion, resulting in a sharper tightening of lending standards than anticipated in this forecast. Expansionary fiscal policy will further boost inflation, supported by monetary policy measures. In addition, new challenges to the global economy could arise from turmoil in the banking sector or from broader geopolitical tensions. On the positive side, more favorable energy price dynamics will lead to a faster decline in headline inflation, which will positively affect domestic demand. Finally, there is the ongoing uncertainty associated with Russia’s ongoing invasion of Ukraine.