The European Commission cuts growth prospects, saying the economy has lost momentum in a difficult year

FRANKFURT – The European Union’s executive Commission cut its growth forecast for this year and next, saying the economy has “lost momentum” in 2023 as inflation weighs on consumer spending and higher central bank interest rates discourage borrowing for purchases and investments.

The forecast for this year was cut from 0.8% to 0.6% for the 20 countries that use the euro, and for next year from 1.3% to 1.2%, the Commission said in its statement on Wednesday Autumn economic forecast in which the figures were revised compared to the previous year forecast in September.

Even these modest growth prospects are at risk from Russia’s ongoing war against Ukraine and the war between Israel and Hamas in Gaza. So far the conflict has not affected oil supplies from Middle Eastern producers such as Saudi Arabia and the United Arab Emirates, but “there is a risk of disruptions to energy supplies that could potentially have a significant impact” on prices and global growth.

While growth remains weak, unemployment remains near record lows and growth is expected to improve as inflation falls and people have more money to spend, the commission said. Meanwhile, government deficits and debt have declined following a surge in stimulus spending during the COVID-19 pandemic.

“We are nearing the end of a challenging year for the EU economy,” said Paolo Gentiloni, EU Economic Commissioner. “Severe price pressures and the monetary tightening required to contain them, as well as weak global demand, have taken their toll on households and businesses.”

“Looking ahead to 2024, we expect a slight increase in growth as inflation continues to ease and the labor market remains robust.”

The economy has barely grown this year, posting zero growth in the first quarter, 0.2% growth in the third and a 0.1% decline in output in the third quarter.

Inflation fell to 2.9% in October from its peak of 10.6% a year earlier as the European Central Bank quickly raised its key interest rate. Higher interest rates are the central bank’s typical tool against inflation. But they can also weigh on growth by making loans more expensive for consumer purchases or for corporate investments in new offices or production facilities.

Copyright 2023 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.