EU Sees Economic Growth despite Persistent Uncertainty

"The European economy is slowly recovering. As inflation continues to ease and private consumption and investment grow, with unemployment at record lows, growth is expected to gradually accelerate over the next two years," Paolo Gentiloni, European Commissioner for Economy, said during the presentation of the forecast.

The gross domestic product (GDP) growth in the EU is projected to reach 0.9 percent in 2024, and 0.8 percent in the eurozone. In 2025, economic activity is forecast to accelerate to 1.5 percent in the EU, and 1.3 percent in the eurozone.

Headline inflation in the eurozone is set to more than halve in 2024, dropping from 5.4 percent in 2023 to 2.4 percent, before easing more gradually to 2.1 percent in 2025. In the EU, the disinflation process is expected to be even sharper, with headline inflation falling to 2.6 percent in 2024, down from 6.4 percent in 2023, and further easing to 2.4 percent in 2025.

"After resuming growth in the first quarter of 2024, the EU economy continued to expand throughout the second and third quarters at a steady, albeit subdued, pace," the Commission noted.

Meanwhile, inflation is steadily declining -- a trend that began at the end of 2022, driven largely by a sharp decrease in energy prices.

Service prices remain high, but are expected to subside from early 2025 as wage growth slows and productivity improves.

The Commission predicts that inflation will reach the European Central Bank's (ECB) target of 2 percent in late 2025 for the eurozone, and in 2026 for the EU.

However, uncertainty and downside risks to the economic outlook have grown. "Structural challenges and geopolitical uncertainty weigh on our future prospects," Gentiloni warned.

Key risks include the ongoing conflicts in Ukraine and the Middle East, which have heightened geopolitical instability and energy security concerns.

Domestically, the EU faces policy uncertainty and structural challenges in the manufacturing sector, which could lead to a loss of competitiveness, dampen growth, and impact the labor market. The European Commission also highlighted natural hazards, such as the recent floods in Spain and summer forest fires, as significant risks.

"Member states will have to walk a narrow path, reducing debt levels while supporting growth. This effort will be aided by the new economic governance framework and the continued implementation of NextGenerationEU," Gentiloni said.

He also addressed the upcoming change in the US administration, with Donald Trump assuming office early next year, and the potential implications of his protectionist policies on the EU's economy.

The Commission warned that a further increase in protectionist measures by trading partners could disrupt global trade, weighing on the EU's highly open economy.

"Looking ahead, strengthening our competitiveness through investments and structural reforms is crucial to boosting potential growth and navigating rising geopolitical risks," Gentiloni said.

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