The Russia-Ukraine war has exerted a profound impact on European economies, precipitating a significant deceleration in economic growth and persistently high inflation. The projections for growth in European advanced economies are notably subdued, with an expected rate of just 0.6% in the coming year. In contrast, emerging economies in Europe, with the exclusion of some conflict-affected countries, are forecasted to experience a slightly more robust expansion of 1.7%.

A concerning aspect of this economic landscape is the advent of technical recessions in over half of the euro area countries. These recessions are characterized by at least two consecutive quarters of declining output, averaging a reduction of approximately 1.5% from peak levels. Countries like Croatia, Poland, and Romania are also expected to endure technical recessions, with an average output decline exceeding 3%.

This downturn represents a marked deviation from the pre-war economic forecasts, underlining the substantial economic losses attributable to the war. One of the key drivers of these losses is the disruption in energy supply chains caused by the conflict. This disruption has been a significant factor in fueling inflation, which is anticipated to remain elevated at around 6% in advanced European economies and even higher, at about 12%, in the emerging economies of the region.

Such a scenario of stunted growth coupled with high inflation poses a considerable challenge to economic stability in Europe, necessitating careful and strategic responses from policymakers to navigate through these turbulent times.

The economic forecast for Europe in 2024 indicates a period of modest recovery and stabilization following recent challenges. Here's a detailed overview based on current projections:

Inflation Outlook

• European Central Bank (ECB) Projections: Inflation is expected to continue its decline over the next couple of years. The headline inflation rate is forecasted to fall from 5.6% in 2023 to 3.2% in 2024, and further down to 2.1% in 2025.
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• OECD Forecast: Inflation in the Eurozone is projected to slow to 2.9% in 2024, following a rate of 5.5% in 2023. The ECB’s target of 2% inflation is not expected to be achieved until the very end of 2025..

Gross Domestic Product (GDP) Outlook

ECB Perspective: The euro area economy is expected to grow by 0.7% in 2023, by 1.0% in 2024, and by 1.5% in 2025. This growth, though gradual, is indicative of a recovery trajectory.
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• OECD Projections: The eurozone is forecasted to experience 0.5% annual GDP growth for the last three months of 2023, with an expected increase of 0.6% in 2023 and 0.9% in 2024. The growth rate is predicted to improve to 1.5% in 2025.
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• EU and Euro Area Forecast: For the broader EU, GDP is projected to expand by 0.8% in 2023 and 1.6% in 2024. In the euro area specifically, the projected growth rates are 0.9% in 2023 and 1.5% in 2024.

Labor Market and Consumption

• Unemployment Rates: Across the OECD countries, unemployment rates are expected to remain low, around 5.1% for both 2024 and 2025. In the eurozone, unemployment is expected to stay low and close to current levels of 6.5%
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• Consumer Spending: Growth in Europe has been impacted by the reliance on bank finance and the strain on incomes due to higher energy costs. However, consumption is expected to be strong in the future, bolstered by tight labor markets and increasing real incomes as inflation slows. The full impact of tighter monetary policy is yet to be seen and could influence economic activity more significantly than anticipated.
  

Overall Economic Outlook

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The European economy in 2024 is navigating through the aftermath of recent global challenges, including the pandemic and geopolitical tensions. The modest growth projections, coupled with a gradual decrease in inflation, suggest a period of stabilization. However, uncertainties remain, particularly regarding the full impact of monetary policies and external economic factors.

These forecasts are based on current data and projections and are subject to change based on evolving global and regional economic conditions.

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