EU Commission revises up 2023 Eurozone GDP forecast, inflation projection lowered

In its quarterly publication released on Monday, the European Commission revised upwards its economic growth forecast for the Eurozone to 0.9% in 2023 from 0.3% previously, projecting 2024 growth unchanged at 1.5%.

Additional takeaways

Eurozone to avoid earlier exepcted technical recession with 0.1% QoQ growth in Q4 2022 and 0.0% QoQ in Q1 2023

Uncertainty surrounding the forecast was high, but risks to growth were broadly balanced.

Domestic demand could turn out higher than projected if the recent declines in wholesale gas prices pass through to consumer prices more strongly and consumption proves more resilient.

Nonetheless, a potential reversal of that fall cannot be ruled out in the context of continued geopolitical tensions.

EU Commission lowers its Eurozone inflation forecast for 2023 to 5.6% YoY from 6.1% expected earlier, sees inflation of 2.5% in 2024, down from the previous forecast of 2.6%.

This forecast crucially hinges on the purely technical assumption that Russia's aggression of Ukraine will not escalate but will continue throughout the forecast horizon.

The German economy will grow slightly this year, revising upwards its previous forecast for a 0.6% contraction. Growth is expected to rebound to 1.3% in 2024.

Market reaction

The quarterly forecasts failed to have any material impact on the Euro, as EUR/USD continues to trade around 1.0675, flat on the day.