The European Union is slowly emerging from stagnation, with economic growth predicted to reach 1% this year and increase to 1.6% in 2025 according to forecasts from the European Commission. This comes after a period where growth had only reached 0.4% in 2023. The Eurozone is also expected to see increases in GDP, with growth of 0.8% in 2024 and 1.4% in 2025. This slight improvement in the economy is mainly driven by increased consumption, as factors like wage increases and decreasing inflation strengthen citizens’ purchasing power.
However, other economic indicators such as investment remain sluggish. The relatively high interest rates are causing caution in the private sector, particularly in construction, despite efforts to stimulate the economy through public spending and the European post-Covid recovery plan of 750 billion euros. Germany’s economic challenges, including losing access to cheap Russian gas and reduced exports due to the Chinese slowdown, weigh heavily on the EU. Germany’s GDP is predicted to increase by 0.1% in 2024 and 1% in 2025, after contracting by 0.3% in 2023. France and Italy, the second and third largest economies in Europe, are also lagging behind with growth rates below 1% this year and 1.5% in 2025.
Despite forecasts for a modest recovery, risks remain high with uncertainties related to ongoing geopolitical tensions such as the conflict in Israel and Palestine and Russia’s invasion of Ukraine. The European Commission’s economists also highlight potential risks from factors such as inflation persisting in the United States and less price increases in Europe, which could delay the European Central Bank’s planned interest rate cuts. These uncertainties have led Commissioner Paolo Gentiloni to caution that the current economic outlook is highly uncertain and affected by external events.
Overall, the EU is projected to experience a gradual improvement in economic performance, driven mainly by increased consumption and improved purchasing power for citizens. However, challenges remain in areas such as investment due to high interest rates and external factors such as geopolitical tensions and inflation in the US. Despite these risks, there is cautious optimism for a modest recovery in the coming years, with hopes that ongoing economic support measures and potential improvements in global conditions will help boost growth in the European Union.
