Feb. 13 (UPI) -- The European Commission said Monday that the EU economy is likely to avoid a recession, while headwinds from high energy costs and inflation will limit recovery moving forward.
The EU economy is on pace to grow by 0.8%, while growth in the eurozone -- the 20 economies that use the euro -- is expected to be slightly higher at 0.9%, the EU said in its Winter 2023 Economic Forecast.
"A better than previously expected turnout for growth at the end of last year and improving economic sentiment suggest that the EU economy is thus set to narrowly escape the technical recession that was projected back in autumn," Paolo Gentiloni, EU commissioner for economy, said in remarks Monday.
The performances, however, were sharply down from forecasts for 2022 which showed growth estimated at 3.5%. GDP growth for 2024 was also limited to 1.6%, and 1.5% in the eurozone in part due to concerns over the war in Ukraine and inflationary pressures.
The European economy had been expected to fall into recession due to "exceptional adverse shocks" but a contraction was avoided thanks to the diversification of energy supply sources and a decline in consumption that saw gas storage levels settle above the seasonal average, pushing wholesale gas prices down well below pre-war levels.
In addition, the EU labor market continued to perform strongly, with the unemployment rate remaining at its all-time low of 6.1% until the end of 2022.
Confidence was improving and January surveys suggested that economic activity was also set to avoid a contraction in the first quarter of 2023, according to the report.
"The EU economy beat expectations last year, with resilient growth in spite of the shockwaves from the Russian war of aggression," said Gentiloni.
"We have entered 2023 on a firmer footing than anticipated: the risks of recession and gas shortages have faded and unemployment remains at a record low. Yet Europeans still face a difficult period ahead."
Gentiloni said growth was still expected to slow down on the back of powerful headwinds and inflation would relinquish its grip on purchasing power only gradually over the coming quarters.
However, thanks to a "united and comprehensive policy response," the EU had weathered the storms that have hit its economies and societies since 2020, he said.
Valdis Dombrovskis, executive vice president for an Economy that Works for People said he was more optimistic about growth prospects and the projected decline in inflation this year.
"We still face multiple challenges, so this is no time for complacency -- not least because Russia's relentless war against Ukraine is still causing uncertainty," Dombrovskis said. "We are determined to boost our industrial competitiveness to strengthen overall growth and resilience. Given all the geopolitical shifts and risks, it is essential to maintain the EU's position as a leading global economic player."
The inflation outlook for the EU was revised slightly lower with headline inflation forecast to fall to 6.4% in 2023, from 9.2% in 2022 and keep heading down to reach 2.8% in 2024. Eurozone inflation is projected to decrease to 5.6% this year, down from 8.4% last year, and continue on downwards to 2.5% next year.
The forecast is in line with another report two weeks ago showing the eurozone's annual inflation rate was continuing on its downward track.
Preliminary figures from Eurostat, the EU's statistics office showed inflation in the 19 countries that used the euro fell in December, the third successive month that the pace at which prices are increasing slowed. Croatia became the 20th eurozone country when it began using the Euro on Jan. 1.
The almost three-quarters of a percentage point decrease to 8.5%, down from 9.2% in December, was the third month in a row that prices in the 20 countries that use the euro and the lowest inflation rate since June.
