Eurozone – 2023-2024 Scenario: shock behind, shock ahead
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- Recent developments and short-term scenario
- Focus: the nature of inflation
- Themes of the scenario
- The policy-mix
The lengthy post-pandemic rebound wave is settling down, and growth normalisation is hitting another, more lasting shock from the war in Ukraine. This is an exceptional slowdown for the economy: annual growth of 5.5% in Q122 fell to 2.3% in Q3. The factor of the war's impact on the cycle. The economic downturn cannot be avoided, though, and a new growth pattern threatens to be weaker for a long time and lower than (also weaker) potential growth. We expect GDP to grow by 0.1% in 2023 and 1.1% in 2024.
The loss in revenue for the Eurozone economy, triggered by the rise in energy commodities prices, can be measured in the rise in the value of energy import costs over the first nine months of 2022 compared to the same period in 2021: those extra costs amount to 4.3pt of GDP. The dynamic effects of worsening terms of trade and lost competitiveness on export volumes and market shares will gradually spread, adding to this toll. The permanent power bill overload in Europe is translating to a long-term downturn in business activity. The focus of fiscal policy is now on containing the costs of rising energy prices for households and businesses. The effectiveness of monetary tightening is surrounded by legitimate uncertainty: what is its capacity to reduce inflation that is mainly imported?Paola MONPERRUS-VERONI, Economist