EU Autumn forecast predicts gradual economic rebound

The European Commission’s Autumn 2024 Economic Forecast indicates a modest yet steady recovery for the EU economy following a prolonged period of stagnation. While global uncertainties persist, projections suggest a gradual rebound in growth and a sustained reduction in inflation rates.

Modest growth resumes in 2024

The Commission forecasts GDP growth of 0.9% for the EU and 0.8% for the euro area in 2024, accelerating to 1.5% and 1.3% respectively in 2025, and further to 1.8% and 1.6% in 2026. A recovery in household consumption, bolstered by improving real wages and declining interest rates, is expected to underpin this rebound. As the purchasing power of consumers strengthens, domestic demand will drive growth, complemented by recovering investment activity and public spending boosted by the EU’s Recovery and Resilience Facility (RRF).

Inflation set to fall sharply

Inflation, which peaked in recent years, is expected to ease significantly. Headline inflation in the euro area is forecasted to drop from 5.4% in 2023 to 2.4% in 2024, gradually declining to 2.1% in 2025 and 1.9% in 2026. In the broader EU, inflation will similarly decline to 2.6% in 2024 from 6.4% in 2023. The moderation in price pressures, particularly in the services sector, is attributed to slowing wage growth and productivity improvements.

Labour market remains strong

Despite economic challenges, the EU’s labour market has remained resilient. In October 2024, the unemployment rate hit a record low of 5.9%. For the full year, the unemployment rate is projected at 6.1% in the EU and 6.5% in the euro area, with a further gradual decline expected. Employment growth, while slowing, is projected to continue, reflecting the economy’s underlying strength.

Fiscal consolidation continues

Member States are taking steps to reduce fiscal deficits, with the EU’s general government deficit expected to decline to 3.1% of GDP in 2024 and further to 3.0% and 2.9% in the following years. Debt-to-GDP ratios, however, are forecast to edge higher due to ongoing primary deficits and rising interest costs.

Rising geopolitical and economic risks

The Commission highlights significant risks to the economic outlook. Continued geopolitical tensions, including Russia’s war in Ukraine and conflict in the Middle East, pose risks to energy security and global trade. Domestically, policy uncertainty and structural challenges, particularly in manufacturing, could hamper competitiveness and growth. Environmental challenges, such as recent flooding in Spain, further underscore the economic impact of climate change.

“With the EU economy steadily recovering, growth should pick up more speed next year with rising consumption, thanks to increased purchasing power and still record-low unemployment, and an expected improvement in investment levels. Still, given today’s high geopolitical uncertainty and many risks, we cannot afford to be complacent.”

“As inflation continues to ease and private consumption and investment growth pick up, growth is set to gradually accelerate over the next two years. However, structural challenges and geopolitical uncertainty weigh on our future prospects. Member States will have to walk a narrow path of bringing down debt levels while supporting growth.”