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Home In brief

Eurozone GDP to contract by 0.1% in 2023, according to Crédito y Caución

Redacción
11 de January de 2023
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Eurozone GDP to contract by 0.1% in 2023, according to Crédito y Caución
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Crédito y Caución expects eurozone GDP growth to contract -0.1 per cent in 2023, a downward revision of 2.6 percentage points from six months ago. “As the possibility of a protracted Russian invasion of Ukraine takes hold, the outlook for the eurozone becomes bleaker due to its greater exposure to the conflict, given its geographical proximity and reliance on fossil fuel imports,” the insurer said in a study.

 

From 2024 onwards, the credit insurer expects growth to pick up again to 2.1 per cent as the negative effects of the war fade. According to the baseline scenario released by Crédito y Caución, euro area GDP is expected to enter recession in the fourth quarter of 2022 and remain negative in the first quarter of 2023.

 

Crédito y Caución expects inflation to remain high at the end of 2022 but to ease in 2023, as the impact of high energy prices fades and supply chain bottlenecks fade. Should inflation be more persistent than expected, additional monetary tightening could slow euro area GDP growth in 2023 to -1.5%.

 

The ongoing slowdown is visible in both the services and manufacturing sectors. Although supply pressures have improved recently, industrial production faces rising energy costs, supply disruptions, input shortages and weakening demand. Export developments have also been affected by geopolitical uncertainty, high inflation and weaker economic conditions worldwide.

 

Weak consumption will be one of the key issues in 2023. The Economic Outlook released by Crédito y Caución forecasts that employment in the euro area will show a slight contraction in 2023 and that consumer spending in the region will fall in the fourth quarter of 2022 and the first quarter of 2023, as real incomes weaken and inflation remains high. While consumption growth is likely to pick up from the second quarter of 2023 onwards, for the year as a whole the forecast is for cumulative growth of 0.1%.

 

The economic expansion has driven a reduction in government deficits in 2022. The overall government deficit in the euro area was reduced from 5.1% in 2021 to around 2.9% in 2022. However, as economic activity weakens, the euro area deficit will rise again to above the 3% target set in the Stability and Growth Pact in 2023 and 2024. Due to continued fiscal stimulus measures, the eurozone’s public debt will be 94% of GDP in 2022 and 95% in 2023 and 2024.

 

 

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