(CN) — The European Union continues to face high inflation and slow growth, but may have turned the corner without first dropping into a recession, according to the Winter 2023 Economic Forecast published on Monday.
The quarterly assessment published by the European Commission tracked several small economic improvements compared to predictions made in the fall.
"Better than expected doesn't mean good and the outlook is of course policy-dependent," economy commissioner Paolo Gentiloni said at a press conference. "The resilience and adaptability of EU households and corporations to the energy crisis has played an important role here, but the better picture also reflects the strength of the common response to the shocks experienced since 2020."
One positive indicator is in unemployment, which held steady at a 14-year low of 6% for the third month in a row. That amounts to 13 million people out of work who are looking for work, roughly half a million fewer than this time last year.
In the fall, the commission had anticipated seeing an economic contraction come winter. Instead the EU now projects 0.8% growth throughout the EU during winter, 0.5 points higher than anticipated. As economic growth improves, the EU still anticipates maxing out at 1.6% growth by 2024.
Since inflation peaked in the double-digits this past October, the EU is poised to watch inflation drop from 9.2% to 6.4% over the rest of the year. The optimistic forecast anticipates inflation settling below 3% by 2024. Rising inflation has been largely tied to energy costs, which spiked after Russia’s invasion of Ukraine a year ago.
At 17.2% in January, European energy inflation was less than half the October rate of 41.5%. Prior to Russia's invasion of Ukraine, the EU imported more than a quarter of its crude oil from Russia, along with 46% of solid fuel and 40% of natural gas needed.
In anticipation of Russia potentially cutting off energy supplies to the EU, member states agreed to reduce their energy use in the months leading up to winter. While the EU remains largely dependent on Russian oil, Eurostat tracked a dramatic 20% reduction in fossil fuel use this past fall.
As a result, the benchmark price for gas dropped to pre-war levels. How soon consumers feel the savings remains to be seen.
"Domestic demand could turn out higher than projected if the recent declines in wholesale gas prices pass through to consumer prices more strongly and consumption proves more resilient,” the commission said in a statement. “Nonetheless, a potential reversal of that fall cannot be ruled out in the context of continued geopolitical tensions.”
Other uncertainties include whether the war in Ukraine will escalate, and how China reopening after three years of Covid restrictions will affect the global market.
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