FRANKFURT, Germany (AP) — The European Union’s executive branch has raised its economic growth forecast for the year, saying Europe will avoid recession and has already passed its inflation peak as natural gas prices fall from astronomically high levels.
But the European Commission warned on Monday that high prices, hurting consumers, would keep the economy in check for months to come.
The Commission said in its Winter Economic Outlook that growth for 2023 should reach 0.8% for the 20 EU countries that use the euro currency. This is an increase from the 0.3% expected in the previous outlook for November.
For the wider 27-nation bloc, growth was estimated at 0.9%, well above 0.3%.
Crediting the improvement was the high level of natural gas storage that has eased fears of energy rationing in winter. European utilities and governments lined up new supplies after Russia halted deliveries of most natural gas to Europe amid war in Ukraine.
Natural gas prices – used to heat homes, fuel industry and generate electricity – hit record highs last summer, 18 times their pre-crisis levels, and have cost homes and prompted businesses to reduce their use. Prices have since fallen from that peak, although they are three times higher than they were before Russia began amassing troops along Ukraine’s border.
The commission said the economy is expected to avoid contraction in the current January-March quarter. After a 0.1% increase in the last three months of last year, it indicates that the tech recession will not happen as was once feared.
One definition of a recession is two straight quarters of shrinking economic output, although economists at the Eurozone Business Cycle Dating Committee use broader data such as unemployment and the depth of the recession when assessing whether or not to declare a recession.
European Commissioner for the Economy Paolo Gentiloni cited efforts to ramp up new supplies of natural gas and a 25% decline in use due to higher prices and conservation measures as key achievements behind the improved outlook.
“We were able to manage energy independence from Russia,” he said at a press conference.
While the outlook is “less negative than we expected,” Gentiloni said, “that doesn’t mean we have a positive overall outlook.”
“Inflation will gradually release its grip on purchasing power,” he said. And the possibility that the war in Ukraine could further disrupt the economy is a risk to growth that “is not easy to predict.”
The commission has said in its report that there are difficult conditions for the economy. Energy costs and consumer prices remain high after annual inflation declined for three straight months from a peak of 10.6% in October to 8.5% in January.
On top of that, the European Central Bank is rapidly raising interest rates to control inflation, a move that slows growth by raising the cost of borrowing for consumers and businesses.
