The EC has improved its forecast for Russian GDP dynamics

The European economy is stagnating – the quarterly growth rate in January-September did not exceed 0.1%; in annual terms, the GDP growth of the euro area countries in 2023 could be 0.6%, follows from the updated forecast of the European Commission. The EC hopes for a revival of the economy and acceleration of consumption growth towards the end of the year – this will be facilitated by a slowdown in inflation. In October, the figure was already at its minimum in two years, amounting to 2.9%.

The European Commission lowered growth forecast of the European economy for 2023 by 0.2 percentage points (pp) – to 0.6%, in 2024 growth may accelerate in the EU countries to 1.3%, however, this estimate was also reduced by 0. 1 p.p. By 2025, growth is expected to accelerate to 1.6% in the euro area and 1.7% in the EU. Stagnation was caused by high inflation, tightening monetary policy (in September the ECBupped the ante by another 0.25 p.p.) and weak external demand – primarily associated with the low pace of recovery in China (the positive contribution of net exports was ensured only by a more rapid decline in imports). Real GDP “barely showed growth” during the first three quarters, the EC notes.

October business activity indicators also point to subdued growth in the fourth quarter, although consumption will recover amid a strong labor market (unemployment is at a historically low level of about 6%), real wage trends (which will turn positive next year) and lower inflation. awaiting the EC.

The GDP growth rate will increase by 0.2% compared to the previous quarter after contracting by 0.1% in July-September.

However, in 10 of the 27 EU countries, GDP will decline as a whole for the year – this will also affect Germany (minus 0.3%) – industrial growth was hampered by high energy prices. In France, growth will be 1%, in Italy – 0.7%, in Spain – 2.4%. The most pronounced decline is expected in Estonia (minus 2.6%), as well as in Ireland (minus 0.9%). Malta and Croatia will grow faster than others (4% and 2.6%, respectively). Outside the euro area, a decline is expected, in particular in Sweden (minus 0.5%).

Inflation in the currency bloc in October was at a two-year minimum, amounting to 2.9% (the peak was passed a year ago – 10.6%). Moreover, if for most of the year the main slowdown in price growth was associated with a decrease in energy prices, now it is also affecting food, industrial goods and services. For the year as a whole, the indicator will slow down to 5.6%, next year – to 3.2%, in 2025 – to 2.2%. Real short-term rates will become positive at the end of the year, and by the end of 2025 they will be about 1%, the EC predicts.

The EC expects the global economy to grow by 3.1% this year – this is higher than the commission previously predicted (2.8%). Despite the tightening of monetary policy, the United States will maintain significantly higher growth rates – plus 2.4%; next year, however, a slowdown is expected to 1.4%.

The European Commission has also improved its forecast for the dynamics of Russian GDP in 2023 and expects growth of 2% against a decline of 0.9% predicted earlier; in 2024 and 2025, the Russian economy will grow by 1.6% annually.

In a document published in May this year, the EC predicted the Russian economy will decline by 0.9% at the end of 2023, and in 2024 GDP growth is expected at 1.3%.

In China, growth could be 5.2% (4.6% in the next two years). At the same time, Chinese statistics published yesterday, on the contrary, turned out to be slightly better than expected – industrial production last month increased by 4.6% in annual terms after a rise of 4.5% in September, and retail sales increased by 7.6% in compared to October last year (in October – 5.5%). Over the ten months of this year, industrial production in China increased by 4.1%, retail sales increased by 6.9%. Investment growth, however, remains low – over nine months it increased by 2.9%.

Tatiana Edovina