The European Union downgraded its growth forecasts for 2023 and 2024 on Monday saying weak consumption resulting from high and still increasing consumer prices for most goods and services would limit growth to 0.8% in both the eurozone and the EU as a whole. File photo by John Angelillo/UPI
Sept. 11 (UPI) -- The European Union revised down its growth forecast for 2023 on Monday to 0.8% from the 1% it projected in May, blaming weak consumption resulting from high and still increasing consumer prices for most goods and services.
Growth in the 20-country block that uses the euro will slow more sharply -- down 0.3% to 0.8% from May's 1.1% forecast -- and when growth does rebound in 2024 it will do so less strongly than previously forecast at 1.3% and 1.4% in the eurozone and EU respectively, according to the Summer 2023 Economic Forecast.
The economy of the EU had been projected to grow by 1.7% next year and the eurozone's by 1.6% but Monday's lowered interim projections from the European Commission were in line with inflation that is expected to continue to decline but may face headwinds from a rise in energy prices next year.
The weaker growth momentum through 2024 comes despite falling energy prices and an exceptionally strong labor market that has delivered record-low unemployment and continued jobs and wages growth, the commission said.
A sharp slowdown in the provision of bank credit to the economy showed higher interest rates were working their way through the economy while survey data indicated slowing economic activity in the summer and going forward along with weakness in industry and waning strength in services.
The EU consumer prices index is now projected at 6.5% for 2023, down from 6.7% in the spring forecast, and 5.6% in the eurozone, down from a forecast 5.8%, due to unexpectedly persistent services inflation but is set to "continue moderating as demand softens under the impact of monetary policy tightening and a fading post-COVID boost."
"The prices of food and non-energy industrial goods will continue contributing to easing inflation over the forecast horizon, also reflecting lower input prices and normalizing supply chains," the commission said.
Eurozone inflation had been expected to halve next year but is now forecast slightly higher at 2.9% while inflation in the EU will slow to 3.2%, compared to the 3.1% forecast in May.
However, the forecast warned the economic outlook faced risks and uncertainty from challenges, internal and external, ranging from restrictive monetary policy dampening economic growth by a greater-than-anticipated degree to the impact of Russia's war in Ukraine and broader geopolitical tensions.
Also weighing on the outlook were "mounting risks" from climate change, demonstrated by the unprecedented wildfires and floods Europe has experienced over the summer.