Economic activity in the EU is slowing down, why?

The European Commission (EC) forecasts that the European Union (EU) economy will continue to grow, albeit more slowly.

Một chợ thực phẩm Tây Ban Nha. Ảnh: Bloomberg

EU economic growth will slow. Image of a Spanish food market. (Source: Bloomberg)

According to the EC, EU economic growth has been revised down to 0.8% in 2023, compared to the 1% published in the spring forecast. Growth in the eurozone in 2023 has also been revised down from 1.1% to 0.8%.

In the 27-member bloc, inflation as measured by the harmonized consumer price index (HICP) is now forecast to reach 6.5% in 2023, down from the 6.7% forecast in the spring, and 3.2% in 2024, down from the previous forecast of 3.1%.

In the Eurozone, inflation is expected to be 5.6% in 2023 and 2.9% in 2024, compared with previous forecasts of 5.8% and 2.8%, respectively.

The latest figures show that economic activity in the EU contracted in the first half of 2023 due to significant shocks. Weak regional demand, particularly consumption, suggests that high consumer prices are weighing on economies, despite falling energy prices and a strong recovery in the labour market with low unemployment, continued employment growth and rising wages.

At the same time, the sharp decline in bank credit activities for the economy shows that tightening monetary policy is gradually having an impact on the economy.

Indicators show that economic activity is slowing, illustrated by continued weakness in industry and declining service momentum, although many parts of the bloc have experienced a fairly impressive tourism season.

The global economy performed better than expected in the first half of the year, despite a weak performance in China. However, the outlook for global growth and trade remains broadly unchanged from the spring, meaning the EU economy cannot count on much support from external demand.

Overall, the slowdown in growth in the EU is expected to persist through 2024 and the impact of tighter monetary policy is expected to continue to dampen economic activity. However, growth is expected to recover slightly next year as inflation is expected to fall further, the labour market remains strong and real incomes gradually recover.

Despite the risks and difficulties, the future of the European economy remains promising, according to Paolo Gentiloni, the EU Commissioner for Economic Affairs. "There is much to be done to support sustainable growth. Effective implementation of national recovery and response plans remains the top priority," he advised.

We need to pursue prudent fiscal policies to encourage investment, consistent with the ongoing efforts of central banks to control inflation. At the same time, we need to work resolutely to reach agreement on reforming budget rules by the end of the year."

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