The economic growth in the eurozone is expected to be slower this year than previously forecasted, according to the European Commission. The culprit is the German economy, which is at risk of entering a recession this year. For our country, the National Bank predicts a growth of 0.2 percent in the third quarter.
Belgian near-zero growth
In the new outlook, the Commission focuses only on the five largest economies in the eurozone (Germany, Spain, France, Italy, and the Netherlands) and Poland. Therefore, it has not delved deeper into the Belgian situation, but the National Bank is releasing growth expectations for the third quarter today. According to a new estimate, the central bank expects Belgian economic growth of 0.2 percent. An economic contraction in the third quarter seems unlikely.
In the second quarter, our economy cooled slightly more than expected, but there was a strong increase in household consumption. As purchasing power is expected to increase significantly, the National Bank predicts that households will continue to consume more this quarter.
Business investments are also expected to continue rising in the third quarter, albeit at a slightly more moderate pace. Investments in housing clearly decreased and are likely to further decline in the third quarter.
The government spent less money last quarter, but under the influence of partly European-funded investment plans and with a view to the elections, the National Bank expects an increase in expenditures.
The growth for the eurozone will remain limited to 0.8 percent in 2023, announced European Commissioner for Economy Paolo Gentiloni. Earlier, 1.1 percent was predicted. Germany, as the largest economy, heavily influences this, and the Commission predicts a recession for our eastern neighbors. The economy is expected to decline by 0.4 percent this year.
For 2024, the Commission is lowering growth expectations for the EU to 1.4 percent and for the eurozone to 1.3 percent. “Economic activity has slowed in the second quarter and will continue to slow in the coming quarters,” said Gentiloni.
Inflation also remains high. In the entire EU, it will be 6.5 percent this year and 3.2 percent next year. For the eurozone, inflation is expected to reach 5.6 percent this year and 2.9 percent in 2024. This puts the ECB’s target of an inflation rate towards 2 percent within reach.
The high inflation and ECB interest rate hikes are putting a brake on European economic growth, according to the Commission. High prices “are taking a greater toll than expected,” but companies are also finding it more difficult to obtain credit due to high interest rates. A new, possibly final interest rate hike by the ECB is expected on Thursday.