Once again, the Brussels Commission revised its growth forecasts downwards on Thursday February 15, while deeming the risks weighing on its scenario higher. In 2024, gross domestic product (GDP) is expected to increase by 1.3% in the European Union (EU) and by 0.8% in the euro area, after increasing by 0.0% in both cases. 5% in 2023. Although it narrowly escaped a recession in the second half of 2023, the Old Continent is struggling to return to a thriving economy.
Last year, activity contracted in eleven countries, notably in Central Europe, the Baltic States and Scandinavia. In Germany, the economic locomotive of the Union, it fell by 0.3%, dragging its community partners in its wake, and it is expected to grow by only 0.3% in 2024. In France, thanks to support measures public and a resilient labor market, growth reached 0.9% in 2023, and it is expected to remain at this modest level this year.
To explain this situation, the Commission cites the drop in consumer purchasing power, weak external demand, particularly American and Chinese, the increase in the cost of credit following the rise in rates as well as the decline, here and there, of budgetary support. In 2025, growth should gradually regain some color, reaching 1.7% in the EU and 1.5% in the euro zone.
Withdrawal from inflation
The faster than expected decline in inflation, under the effect of the prevailing gloom and the decline in energy prices, should contribute to this slight improvement. After reaching 5.4% in 2023 in the Monetary Union, the price increase is expected to stand at 2.7% in 2024 and 2.2% in 2025. In the process, the purchasing power of citizens would progress, especially since unemployment has not soared and labor shortages have not disappeared.
The decline in inflation should also translate into lower interest rates. In this context, predicts the Commission, despite their falling margins, companies should invest more, thanks to easier access to credit. She nevertheless notes that today, even if financing conditions on the markets have already become more flexible, “the interest rates charged by banks have not changed much and loan volumes have almost stopped”.
These forecasts remain questionable, note Brussels experts, while geopolitical tensions are increasing. The war in Ukraine, which began almost two years ago, looks set to last. The Israeli-Palestinian conflict too, which could also extend to the Middle East. Finally, the situation in the Red Sea, which, at this stage, only marginally affects the European economic situation, could darken the landscape a little further.
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