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EU predicts the stop of the recession.

 The EU is set to dodge a fore­cast reces­sion as fall­ing gas prices, sup­port­ive gov­ern­ment policy and

Straggling business

firm house­hold spend­ing boost the region’s out­look, the European Com­mis­sion says. Brus­sels lif­ted its pre­dic­tions for EU growth this year to 0.8 per cent, more robust than the 0.3 per cent fore­cast in Novem­ber, and said the region would avoid a tech­nical reces­sion, defined as two suc­cess­ive quar­ters of eco­nomic con­trac­tion. The euro­zone is fore­cast to expand 0.9 per cent in 2023, bet­ter than the 0.3 per cent the com­mis­sion expec­ted towards the end of last year. The upgrades bring the com­mis­sion in line with ana­lysts, who now pre­dict the region will dodge a reces­sion after fore­cast­ing a severe con­trac­tion dur­ing the lat­ter half of 2022.

The spectre of shut­downs in Rus­sian gas sup­plies, coupled with fall­ing indus­trial out­put and flag­ging busi­ness sen­ti­ment, fanned fears last autumn that the EU was head­ing into a deep reces­sion. « Growth is still expec­ted to slow down on the back of power­ful head­winds and infla­tion will relin­quish its grip on pur­chas­ing power only gradu­ally over the com­ing quar­ters». Brus­sels also declared that infla­tion had peaked, pre­dict­ing con­sumer price growth would be 6.4 per cent this year in the EU, down from last year’s 9.2 per cent. Euro area infla­tion was pro­jec­ted to mod­er­ate to 5.6 per cent this year from 8.4 per cent in 2022.

Infla­tion in the single cur­rency area will ease to 2.5 per cent in 2024, accord­ing to the fore­casts. However, real wages would con­tinue fall­ing in the short term given the high price rises, Brus­sels said, observing that core infla­tion, which excludes energy and unpro­cessed food, was rising in Janu­ary. Moreover, higher offi­cial interest rates would start bear­ing down on credit flows and invest­ment, the com­mis­sion added. The European Cent­ral Bank lif­ted rates to 2.5 per cent this month and sig­nalled a fur­ther half-point rise in March.

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