EU economy to avoid recession this year, says European Commission

The European Commission lifted its growth forecasts on Monday as it said the European Union and the eurozone were set to "narrowly avoid" a technical recession this year.

The EC now expects growth of 0.8% in the EU in 2023 and 0.9% in the eurozone, up 0.5 and 0.6 percentage points on its Autumn Forecast.

"Almost one year after Russia launched its war of aggression against Ukraine, the EU economy entered 2023 on a better footing than projected in autumn," it said. "Both areas are now set to narrowly avoid the technical recession that was anticipated for the turn of the year. The forecast also slightly lowers the projections for inflation for both 2023 and 2024."

The Commission pointed to "favourable developments" since the Autumn Forecast, which have improved the growth outlook for this year.

"Continued diversification of supply sources and a sharp drop in consumption have left gas storage levels above the seasonal average of past years, and wholesale gas prices have fallen well below pre-war levels," it noted.

It also said the EU labour market has continued to perform strongly, with the unemployment rate remaining at its all-time low of 6.1% until the end of 2022.

Headline inflation in the EU is forecast to fall from 9.2% in 2022 to 6.4% in 2023 and to 2.8% in 2024. In the eurozone, meanwhile, it is expected to slow from 8.4% last year to 5.6% in 2023 and to 2.5% in 2024. This would still be well above the European Central Bank's 2% target.