Eurozone's GDP growth forecast at 0.6% in 2023: S&P Global

Despite a start to the year characterised by stagflation, three critical developments led to this revised outlook. First, the labour market showed robust resilience, with unemployment on a downward trend across most countries. Second, certain fiscal measures had a stronger impact on GDP than initially predicted. Lastly, the European Central Bank (ECB) is reportedly viewing core inflation more negatively than three months prior, indicating the potential for interest rates to rise again in July.

However, Eurozone’s GDP growth forecast for 2024 has been slightly lowered from 1 per cent to 0.9 per cent. This revision reflects fading tailwinds from the COVID-19 recovery and higher interest rates' potential to suppress demand. Despite this, a severe recession that would significantly strain balance sheets is not anticipated, as per S&P Global’s Economic Outlook Eurozone Q3 2023 report.

On the brighter side, the medium-term economic outlook (2025-2026) appears more positive than the short-term (2023-2024), with growth forecasted at 1.6 per cent for both years. The economic cycle is expected to be bolstered by a move away from demand-restraining monetary policies, increased purchasing power, and continued fiscal stimulus through the NextGenEU's public spending plan until the end of 2026.

In terms of inflation, S&P Global predicts a slow disinflation process. It forecasts headline inflation to decelerate from 8.4 per cent in 2022 to 5.8 per cent in 2023, and then to 2.7 per cent in 2024. The return to central banks' price stability isn't expected until early 2025. Despite falling energy prices, double-digit food inflation and increasing labour costs pose challenges to the disinflation trend.

Fibre2Fashion News Desk (DP)