EU GDP will grow by 3.5% in 2023 and moves away from the risk of recession

The European Commission's winter forecast has shown that the European Union (EU) "narrowly" avoided the economic recession predicted in the autumn forecast by avoiding the fourth quarter contraction and achieving an annual growth rate in 2022 of 3.5%, both in the EU and in the euro area, and leaving behind an inflation peak of 9.2%. 

In particular, the EU was expected to chain -0.5% at the end of 2022 and -0.1% contraction in the first three months of 2023, but, since autumn, the EU economy has experienced a number of positive developments, such as the fall of the European benchmark gas price below its pre-war level, due to the sharp decline in gas consumption and the continued diversification of supply sources. 

All this contributed to a milder than estimated slowdown in the third quarter despite the energy crisis and the resulting record inflation, while the fourth quarter achieved stagnation rather than the 0.5% contraction expected in the autumn. 

The EU unemployment rate remained at an all-time low of 6.1% in December and three months of declining inflation rates have confirmed that, as expected in the autumn, the peak of 9.2% - one tenth below the 9.3% forecast - is behind us. 

The forecasts also suggest that economic confidence has continued to improve, suggesting that economic activity will avoid a contraction also in the first quarter of 2023, allowing the EU economy to "narrowly" escape the recession forecast in the autumn. 

However, the EU executive has warned that the EU economy still has challenges ahead, such as underlying inflation, which continued to rise in January, while consumers and businesses continue to face high energy costs.