The upward revision is despite an anticipated winter slump amid Russia’s war on Ukraine coupled with a looming energy crisis
The European Commission revised the continent’s 2023-2024 growth outlook on May 15, 2023. The executive arm of the European Union (EU) upgraded the growth estimate for the 20 countries with the Euro as their currency to 1.1 per cent from the 0.9 per cent pinned in the earlier predictions in February.
The upward revision is despite an anticipated winter slump amid Russia’s war on Ukraine coupled with a looming energy crisis. The continent has bypassed the recession, but high inflation will continue to cloud the economy by stifling consumer spending, noted EU in its Spring 2023 Economic Forecast.
Read more: The rush to use fossil fuels due to the war in Ukraine is “madness”: UN Secretary-General
The continent’s economy “is holding up remarkably well in the face of Russia’s aggression against Ukraine,” tweeted the commission.
The European economy is in better shape than we projected last autumn.
— European Commission (@EU_Commission) May 15, 2023
It is holding up remarkably well in the face of Russia’s aggression against Ukraine, leading to an upgrade in today’s growth forecast for 2023.
Read the Spring #ECForecast ↓
The European economy continues to show resilience in a challenging global context, Paolo Gentiloni, European commissioner for economy, said at a press conference.
Following Russia’s decision to shut off most of its natural gas shipments to Europe due to the conflict, Europe was bracing for an energy crisis this winter. Gas, which is used to heat houses, produce electricity and run companies, saw price surges that were unbearable for consumers.
A mild winter, decreased usage and a feverish rush to secure additional natural gas sources — via more expensive alternate liquefied gas supplies — helped Europe get through the winter.
“Declining energy prices, diversification of energy supply and reduced consumption have contained the adverse economic impact of Russia’s war of aggression against Ukraine,” Gentiloni added.
Also read: COP27: Russian invasion of Ukraine released 8 million tonnes carbon till September, says report
Core inflation, however, remains persistently high, which could erode people’s purchasing power, slow investment growth and impede access to credit. To keep inflation in check, it is vital to make sure fiscal policy remains prudent and to maintain the momentum of reforms and investments, Executive Vice President Valdis Dombrovskis said in a press release.
Core inflation which is considered a more reliable method, does not include volatile food and energy prices.
While the economy only just managed a 0.1 per cent gain in the first three months of the year, consumer prices increased by 7 per cent in April compared to the same period last year, the forecast noted.
A growing interest rate is also hampering the government’s efforts to flatten the inflationary curve. The European Central Bank’s attempt to
get inflation back to its target of 2 per cent is met with obstacles from rising interest rates.
The availability and demand for loans for house purchases or investments have declined due to higher borrowing rates. Though European officials claim that their banks are not directly affected by the US bank collapses, heightened regulatory and shareholder scrutiny of bank finances may impact credit creation.
However, “an expansionary fiscal policy stance would fuel inflation further, leaning against monetary policy action,” noted EU.
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Following Russia’s decision to shut off most of its natural gas shipments to Europe due to the conflict, Europe was bracing for an energy crisis this winter. Representative image: iStock..png)
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