Brussels: Europe and the Arabs
The European Union economy continues to grow, albeit with less momentum. Forecasts revise the growth of the EU economy downward to 0.8% in 2023, from 1% expected in the spring forecast, and to 1.4% in 2024, from 1.7%. Growth in the euro area also declined to 0.8% in 2023 (from 1.1%) and 1.3% in 2024 (from 1.6%), according to the economic forecasts that the Commission publishes every three months and published today, Monday. winter season
Inflation is expected to continue declining over the forecast horizon. Inflation in the Harmonized Index of Consumer Prices (HICP) is now expected to reach 6.5% in 2023 (compared to 6.7% in the spring) and 3.2% in 2024 (compared to 3.1%) in the EU. In the eurozone, inflation is expected to be 5.6% in 2023 (compared to 5.8%) and 2.9% in 2024 (compared to 2.8%).

Low growth momentum
The latest data confirms that economic activity in the European Union was weak in the first half of 2023 on the back of the massive shocks experienced by the European Union. Weak domestic demand, particularly consumption, shows that rising and rising consumer prices for most goods and services are taking a bigger toll than expected in the spring forecast. This comes despite low energy prices and an exceptionally strong labor market, which has seen record low unemployment, continued employment expansion, and rising wages. Meanwhile, the sharp slowdown in the provision of bank credit to the economy shows that monetary tightening is starting to work its way through the economy. Survey indicators now point to a slowdown in economic activity in the summer and coming months, with continued weakness in industry and fading momentum in services, despite the strong tourist season in many parts of Europe.
The global economy performed somewhat better than expected in the first half of the year, despite a weak performance in China. However, global growth and trade expectations remain broadly unchanged compared to the spring, meaning the EU economy cannot rely on strong support from external demand.
Overall, the EU's weaker growth momentum is expected to extend into 2024, and the impact of tight monetary policy is expected to continue to constrain economic activity. However, a slight rebound in growth is expected next year, as inflation continues to decline, the labor market remains strong, and real income gradually recovers.

Inflation to fall further
Inflation continued to decline in the first half of 2023 as a result of lower energy prices and moderate inflationary pressures resulting from food and industrial commodities. In the euro area, it reached 5.3% in July, exactly half the peak level of 10.6% recorded in October 2022, and remained stable in August.
Energy prices are expected to continue to decline during the remainder of 2023, but at a slower pace. It is expected to rise slightly again in 2024, driven by higher oil prices. Services inflation has so far been more stable than previously expected, but is expected to continue to moderate as demand declines under the influence of tightening monetary policy and fading support after Covid-19. Prices of non-energy food and industrial commodities will continue to moderate inflation over the forecast horizon, also reflecting lower input prices and a return to normal supply chains.

Forecasts face risks and uncertainty
Russia's ongoing aggressive war against Ukraine and broader geopolitical tensions continue to pose risks and remain a source of uncertainty. Moreover, monetary tightening may affect economic activity more than expected, but it may also lead to a faster decline in inflation that would hasten the recovery of real incomes. In contrast, price pressures could become more persistent.
Increasing climate risks, manifested in extreme weather conditions, wildfires and unprecedented floods in the summer, are also impacting the forecast.

The Summer 2023 Economic Outlook provides an update to the Spring 2023 Economic Outlook, which was presented in May 2023.
This is a provisional forecast, containing GDP and inflation forecasts for the six largest economies of the EU member states, the euro area and the EU as a whole. The comprehensive analysis looks at the latest economic developments for 21 other member states and is taken into account when calculating the EU and Eurozone totals.
The summer forecast is based on a set of technical assumptions regarding exchange rates, interest rates and commodity prices with a cut-off date of 30 August 2023. For all other incoming data, including assumptions about government policies, this forecast takes into account information received up to 7 September 2023.
The authority publishes two comprehensive forecasts (spring and fall) and two provisional forecasts (winter and summer) each year. The 2023 edition of the Summer Outlook is being presented later than previous occasions to enable it to incorporate several key data releases in July and August.