Summer 2023 Economic Forecast: Easing growth momentum amid declining inflation and robust labour market

Key figures

The EU economy continues to show resilience in the face of the formidable shocks it has endured in recent years, but it has lost momentum. Economic activity in the EU was very subdued in the first half of 2023.

Weakness in domestic demand, in particular consumption, shows that high, and still increasing consumer prices for most goods and services, are taking a heavy toll, more than expected in the Spring Forecast. This is despite declining energy prices and an exceptionally strong labour market, which has seen record low unemployment rates, continued expansion of employment and rising wages.

Meanwhile, the sharp slowdown in the provision of bank credit to the economy shows that monetary policy tightening is working its way through the economy. Survey indicators point to slowing economic activity in the summer and months ahead, with continued weakness in industry and fading momentum in services, despite a strong tourism season in many parts of Europe.

Disclaimer: The Summer 2023 Economic Forecast comprises GDP and inflation projections for the six largest EU Member State economies, the euro area and the EU as a whole. The latest economic developments for 21 other Member States are addressed in the overall analysis and are factored into the calculation of the EU and euro area aggregates.

The weaker growth momentum in the EU is expected to extend to 2024, and the impact of tight monetary policy is set to continue restraining economic activity. As the outlook for global growth and trade remains broadly unchanged compared to spring, the EU economy cannot count on strong support from external demand. However, a mild rebound in growth is still projected next year, as inflation keeps easing, the labour market remains robust and real incomes gradually recover.

Retail energy prices are set to continue declining for the remainder of 2023, but at a slowing pace. They are projected to increase slightly again in 2024, driven by higher oil prices. Inflation in services is set to continue moderating as demand softens, under the impact of monetary policy tightening and a fading post-COVID boost. The other non-energy components of the consumption basket will continue contributing to easing inflation over the forecast horizon, also reflecting lower input prices and normalising supply chains.

Overall, this forecast revises growth down for the EU and the euro area in both 2023 and 2024. HICP inflation is expected to continue declining, broadly in line with the spring projections.

Russia’s ongoing war of aggression against Ukraine and wider geopolitical tensions continue to pose risks and remain a source of uncertainty. Furthermore, monetary tightening may weigh on economic activity more heavily than expected, but could also lead to a faster decline in inflation that would accelerate the restoration of real incomes. By contrast, price pressures could turn out more persistent, prompting a stronger response of monetary policy. Mounting climate risks also weigh on the outlook.

Thematic boxes - Summer 2023

How is inflation shaping consumer confidence and spending?

This box takes a look at the European Commission’s consumer survey to explore the impact of recent price developments on consumers’ sentiment, savings and consumption intentions

Press release of 11 September 2023

EC press conference by Commissioner Paolo GENTILONI on the 2023 Summer Economic Forecast - LIVE

Presentation of Commissioner Gentiloni