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According to the recent macro-economic prognoses, the European economy is “slowly recovering”; as inflation continues to ease and private consumption and investment growth pick up. Besides, unemployment is at record low level and growth is set to gradually accelerate over the next two years. However, structural challenges and geopolitical uncertainty heavily impacted the EU-wide future prospects.
Background
Following a prolonged and broad-based stagnation, the EU economy resumed growth in the first quarter of this year. As projected in spring, the expansion continued at a subdued, yet steady, pace throughout the second and third quarters, amidst further abating inflationary pressures. The conditions for a mild acceleration of domestic demand appear in place, despite heightened uncertainty.
The EU member states will have to bring down debt levels while supporting growth; hence, the new economic governance framework is needed followed by a continued implementation of NextGenerationEU program. Looking ahead, strengthening EU-wide competitiveness through investments and structural reforms is crucial to lift potential growth and navigate rising geopolitical risks. The new autumn forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices by the end of October 2024, including assumptions about government policies.
The European Commission publishes two comprehensive forecasts (spring and autumn) each year, covering a broad range of macroeconomic and fiscal variables for all EU member states, candidate countries, EFTA countries and other major advanced and emerging market economies.
Main reference to: https://ec.europa.eu/commission/presscorner/detail/en/ip_24_5787
Key macroeconomic data
The following are key figures in the EU-27 integration process:
= Growth pattern
GDP in EU-27: in 2024 – 0.9%; in 2025 – 1.5% and in 2026 – 1.8%
In Euro area: in 2024 – 0.8%; in 2025 – 1.3% and in 2026 – 1.6%
The real GDP growth in 2024 is at about one percent in the EU-27 and 0.8% in the euro area. Growth in the EU-27 is expected to pick up to 1.5 percent in 2025; the economic activity is going to expand to 1.8%; growth in the euro area is set to follow similar dynamics with 1.6% in 2026. The headline inflation in the euro area is set to more than halve in 2024, from 5.4% in 2023 to 2.4%, before easing more gradually to 2.1% in 2025 and 1.9% in 2026.
= Unemployment in the EU
2024: 6.1%; 2025: 5.9%; 2026: 5.9%
In Euro area: in 2024 – 6.5%, in 2025 – 6.3% and in 2026 – 6.3%
Unemployment rate in the EU is going to reach a new historical low of 5.9% by 2026. Employment growth is set to slow down from 0.8% in 2024 to 0.5% in 2026. Following a contraction in 2023, productivity is set to stagnate in 2024. It is then expected to post a cyclical rebound in 2025 and to gain even more strength in 2026. Still, productivity growth is set to remain subdued, mentioned the EU forecast.
= Inflation level in EU: in 2024 – 2.6%; in 2025 -2.4% and in 2026 – 2.0%
In the euro area: in 2024 – 2.4%; in 2025 – 2.1% and in 2026 – 1.9%.
Strong inflationary pressures in services are set to remain strong until early 2025 and start moderating thereafter, driven by slowing wage growth and a projected pick-up in productivity, and supported by negative base effects.
= Government deficit in the EU-27: in 2024 -3.1%; in 2025 – 3.0% and in 2026 -2.9%.
In the euro area: in 2024 – 3.0%; in 2025 – 2.9% and in 2026 – 2.8%.
The EU general government deficit is expected to decline in 2024 by around 0.4 points to 3.1% of GDP, driven by revenue windfalls and fiscal consolidation efforts. In 2025, the deficit is forecast to decrease marginally, to 3.0%, as further budgetary restraint is offset by revenue shortfalls. In 2026, the positive economic momentum is set to reduce the deficit further to 2.9%.
The aggregate debt-to-GDP ratio of the EU is projected to increase slightly: from 82.1% in 2023 to 83.4% in 2026. This follows an almost 10 points decrease between 2020 and 2023 and reflects the effect of still elevated deficits that are no longer offset by high nominal growth, while the impact of higher interest rates becomes more visible. In the euro area, government debt is forecast to rise from 88.9% of GDP in 2023 to 90% in 2026.
Other vital growth factors
The household saving rate was at about 15 percent in 2024- above expectations and more than 3 pouts above its pre-pandemic average; the trend was “disappointing” (as the forecast noted) and contracted by more than 2.5% in the first half of 2024. More than half of the contraction was due to one-off transactions in intellectual property products: the contraction was still deep and broad-based across asset categories. Elevated uncertainty is estimated to have weighed on consumption and especially investment. A rebound in global goods trade and continued expansion of trade in services nudged exports of goods and services up by 0.5% in the first half of 2024; imports growth lagged considerably behind; thus, net external demand contributed positively to growth. Although consumption has gained strength in the third quarter of 2024, but investment has still further contracted.
As to energy, compared to the spring assumptions futures oil prices were 7% lower in 2024 and 10% lower in 2025. Meanwhile, prices of gas have gone up since spring and are expected to be higher than assumed in the previous forecast in both 2024 and 2025, while wholesale prices of electricity are projected slightly higher in 2024 but lower in 2025.
Reference and source: https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/autumn-2024-economic-forecast-gradual-rebound-adverse-environment_en
Financial issues
In October 2024, the European Central Bank cut its policy rate for the third time since the beginning of its loosening cycle in May. At the cut-off date of this forecast, markets priced the euro area deposit facility rate below 3% by the end of the year. By the end of 2025, the policy rate is expected to fall further to around 2%, some 60 basis points lower than expected in spring, and to stabilize around that level for the rest of the forecast horizon.
Most central banks in non-euro states are also expected to loosen the monetary stance, with somewhat more pronounced cuts in Poland and especially Romania. Long-term rates in the euro area (10-year) decreased in recent months, but by far less than short-term rates. They are now expected to stay slightly above 2% over the forecast horizon, with the downward adjustment since spring largely reflecting lower inflation expectations.
Meanwhile, bank lending data for the euro area show signs of revival. Net lending is expanding again, but remains weak in nominal terms. Demand for housing loans is resuming and credit standards are easing. For enterprises, credit standards have not yet started loosening, but in the last quarter they stopped tightening – heralding a turnaround in credit flows.
Economic forecast by countries in the Baltic Sea area: examples
= Economic forecast for Denmark
The GDP is expected to expand by 2.4% in 2024; thereby continuing the sound growth of recent years, with net exports as the main driver. Over 2025 and 2026 growth is projected to moderate while the main driver switches from net exports to domestic demand. The recovery in real wages is foreseen to benefit private consumption while investment is expected to be supported by lower interest rates and high-capacity utilization. Employment is projected to grow marginally while the unemployment rate could stabilize at present levels. Public finances continue to be characterized by sizeable, albeit declining, general government surpluses projected over the entire forecast horizon.
Source: https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/denmark/economic-forecast-denmark_en
= Economic forecast for Latvia
Latvia’s economy is set to stagnate in 2024. Private consumption has not yet recovered despite pronounced wage growth, whereas public expenditure is set to remain strong, through additional spending on healthcare and research.
The economy is forecast to pick up in 2025 and 2026, with GDP growth reaching 1% and 2.1%, respectively. A decline in energy prices and a broad-based slowdown in other price categories are set to bring inflation down to 1.2% in 2024.
As energy prices normalize, inflation is expected to reach 2.2% in 2025 and 2026. Unemployment is projected to increase in 2024 and to decrease slightly in 2025 and 2026. The general government deficit is forecast to increase to 3.2% of GDP in 2025 and 2026 driven by weaker growth of tax revenue.
Gross public debt (% of GDP) is about 48 percent in 2024, about 50,3 percent in 2025 and 51,6 percent in 2026.
More in: https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/latvia/economic-forecast-latvia_en
= Economic forecast for Poland
After rebounding in 2024, Poland’s economy is set to expand at a faster rate in 2025. Growth is forecast to be supported by strong private consumption and investment, while net exports are expected to weigh on the economy. Growth is projected to slow down in 2026. Inflation eased in 2024 but is forecast to pick up temporarily in 2025 due to the unfreezing of energy prices. Following a high general government deficit in 2024, gradual fiscal consolidation is expected over the forecast horizon.
Thus, GDP growth (%, yoy) is 3 percent in 2024; 3,6 percent in 2025 and 3,1 percent in 2026. Gross public debt (% of GDP) during these three years will be – 54,7; 58,9 and 62,4.
Source: https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/poland/economic-forecast-poland_en
= Economic forecast for Denmark
In 2024, GDP is expected to expand by 2.4%, thereby continuing the sound growth of recent years, with net exports as the main driver. Over 2025 and 2026 growth is projected to moderate while the main driver switches from net exports to domestic demand. The recovery in real wages is foreseen to benefit private consumption while investment is expected to be supported by lower interest rates and high-capacity utilization. Employment is projected to grow marginally while the unemployment rate could stabilize at present levels. Public finances continue to be characterized by sizeable, albeit declining, general government surpluses projected over the entire forecast horizon.
During 2024-25 the GDP growth (%, yoy) will be 2,4; 2,5 and 1,8
Gross public debt (% of GDP) during these years is: 31,0; 29,3; and 28,3.
More in: https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/denmark/economic-forecast-denmark_en
= Macroeconomic forecast for Germany
Economic activity in Germany is expected to decline by 0.1% in 2024. High uncertainty has been weighing on consumption and investment, and the trade outlook has worsened as global demand for industrial goods weakened. Going forward, domestic demand is set to pick up, driven by increases in real wages. This is expected to support a recovery in GDP growth to 0.7% in 2025 and 1.3% in 2026. The government deficit is projected to decrease and the government debt ratio to stabilize around 63% of GDP.
Gross public debt (% of GDP) is about 63 percent in 2024, 63,2 in 2025 and 62,8 in 2026.
Weak domestic and foreign demand for manufacturing goods, combined with high uncertainty, impacted investment in equipment. In addition, the construction sector was dragged down by labour shortages and weak domestic demand. Amidst low consumer sentiment, the saving rate increased. Private consumption thus did not support economic growth, despite an increase in real disposable income. Household consumption is however estimated to have rebounded by the end of 2024.
Source: https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/germany/economic-forecast-germany_en
More in the statement by Commissioner Gentiloni at the presentation of the Autumn 2024 Economic Forecast in: https://ec.europa.eu/commission/presscorner/detail/da/statement_24_5865