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In
its interim forecasts for gross domestic product and inflation
of the euro zone's five biggest economies, the Commission said
the single currency area's GDP (gross domestic product) would
expand 0.8% in 2023 and 1.3% in 2024, against forecasts of 1.1%
and 1.6% respectively made in May.
"Weakness in domestic demand, in particular consumption, shows
that high and still increasing consumer prices for most goods
and services are taking a heavier toll than expected in the
spring forecast," the Commission said.
"This is despite declining energy prices and an exceptionally
strong labour market, which has seen record low unemployment
rates, continued expansion of employment, and rising wages," it
said.
The Commission forecast euro zone consumer inflation of 5.6% in
2023 and 2.9% in 2024, both well above the European Central
Bank's target of 2.0%. Inflation this year is to be lower than
the 5.8% forecast in May, but higher than previously forecast in
2024, as the May forecast was for 2.8%.
The ECB has been rapidly raising rates since the middle of 2022
to stem record price growth, making credit for the economy more
expensive - a factor that hit the growth forecast.
"The sharp slowdown in the provision of bank credit to the
economy shows that monetary policy tightening is working its way
through the economy," the Commission said.
"Survey indicators now point to slowing economic activity in the
summer and the months ahead, with continued weakness in industry
and fading momentum in services, despite a strong tourism season
in many parts of Europe," it said.
Germany, Europe's biggest economy, will shrink 0.4% this year,
the Commission forecast, revising down a 0.2% growth prediction
from May. Next year, German growth will also be slower at 1.1%
instead of the earlier expected 1.4.
Italy and the Netherlands will also grow more slowly this year,
the Commission said, forecasting a GDP expansion of 0.9% and
0.5% respectively, down from 1.2% and 1.8% respectively.
But France and Spain will grow faster than previously expected
in 2023 , the Commission said, projecting 1.0% and 2.2% growth
respectively instead of the previously seen 0.7% and 1.9%.
(Reporting by Jan Strupczewski; editing by Philip Blenkinsop)
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