EU cuts growth and inflation forecasts

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The European Commission has downgraded its forecasts for EU and eurozone growth for the year, as higher interest rates weigh on economic activity, and said inflation was expected to halve from the highs of 2023.

In its economic forecasts published on Thursday, the commission said it expected gross domestic product to grow 0.8 per cent in the eurozone this year and 0.9 per cent in the EU, down from 1.2 per cent and 1.3 per cent respectively in its autumn forecast.

Growth is expected to pick up in 2025, rising to 1.5 per cent in the eurozone and 1.7 per cent in the EU.

The commission also revised output for 2023 down a notch to 0.5 per cent in both areas, following a stagnation in the last quarter.

“The rebound expected in 2024 is set to be more modest than projected three months ago, but to gradually pick up pace on the back of slower price rises, growing real wages and a remarkably strong labour market,” said Paolo Gentiloni, the EU’s economy commissioner. 

Inflation expectations were revised downward as energy and other commodity prices have come down faster than expected. The European Central Bank raised its deposit rate to a record 4 per cent in September in a bid to tame persistent price pressures.

Annual eurozone inflation is expected to fall by half to 2.7 per cent this year from 5.4 per cent in 2023, a faster decline than the 3.2 per cent rate previously forecast for 2024. Eurozone inflation expectations for 2025 remain unchanged and slightly above target at 2.2 per cent.

The commission warned that trade disruptions in the Red Sea could keep monthly inflation readings elevated.

Markets expect the ECB to start cutting interest rates this year, possibly in April.

But at the European parliament on Thursday, ECB president Christine Lagarde resisted suggestions that rate cuts might be imminent. “We are in a disinflationary process. We are…