Eurozone will avoid recession in 2023 due to speed of German recovery

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/Daniel Roland/AFP

The Eurozone's economic growth is likely to be stronger than previously expected this year while inflation will be lower than in forecasts towards the end of 2022, the European Commission said, in large part thanks to a more positive outlook for Germany's economy.

The EU executive arm said economic growth in the 20 countries using the euro was likely to be 0.9% this year, rather than the 0.3% predicted last November.

The German economy will grow slightly in 2023, a new report published on Monday predicted, an improvement on its previous forecast for a 0.6 percent contraction. In its winter forecasts, the European Commision envisages 0.2 percent GDP growth for Europe's biggest economy in 2023, more than it expected in autumn due to the easing of energy prices and policy support to households and firms.

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Despite a recent improvement in confidence, the economy is expected to suffer another mild decline in early 2023, as energy prices for households are still increasing and government support for January and February will only be disbursed in March. German consumer prices, harmonized to compare with other European Union countries, peaked at 11.6 percent in October.

Businesses across the bloc will also continue to face high energy costs and the report noted "core inflation was still rising in January, further eroding purchasing power."

Growth is expected to rebound to 1.3 percent in 2024, according to the Commission's forecasts but it warned that inflation was still a risk as "price pressures may turn out broader and more entrenched than expected."

Source(s): Reuters