EU cuts inflation forecast for 2024 despite uncertainty

BRUSSELS

The EU on Wednesday predicted lower inflation in the eurozone in 2024 than previously forecast but warned the single-currency area's economy still faced risks from geopolitical tensions including wars in Ukraine and Gaza.

The European Commission expects inflation to fall to 2.5 percent in 2024, down from a previous forecast of 2.7 percent — news that will be welcomed by the European Central Bank (ECB).

But the EU's executive arm said it still expects lethargic growth of 0.8 percent in 2024 for the 20-country eurozone, unchanged from February's forecast.

The ECB has halted its aggressive rate-hiking campaign launched in the aftermath of Russia's 2022 assault on Ukraine. The bank is widely expected to cut rates in June as inflation has fallen and higher borrowing costs have taken their toll on the eurozone.

Inflation reached record levels after Moscow's invasion sent energy costs soaring and forced Europe into a mad rush to find alternative sources to Russia.

The EU's economy commissioner, Paolo Gentiloni, appeared upbeat, pointing to EU data from April that showed the eurozone economy grew by 0.3 percent in the first quarter of 2024.

"The EU economy perked up markedly in the first quarter, indicating that we have turned a corner after a very challenging 2023," he said.

But he warned that Wednesday's "forecast remains subject to high uncertainty and — with two wars continuing to rage not far from home — downside risks have increased".

 Ailing German economy

The commission said inflation would also continue to decline and reach 2.1 percent in 2025, within touching distance of the ECB's two-percent target.

"Disinflation is set to be mainly driven by non-energy goods and food, while energy inflation edges up and services inflation declines only gradually, alongside moderation in wage pressures," it said in a statement.

The EU hopes next year will be better but Brussels slightly downgraded its growth forecast for the eurozone to 1.4 percent in 2025 from 1.5 percent previously.

"We expect a gradual acceleration in growth over the course of this year and next, as private consumption is supported by declining inflation, recovering purchasing power and continued employment growth," Gentiloni said.

Germany's ailing economy has been a drag on the eurozone as a whole and Wednesday's forecast did not present a much brighter picture for the bloc's economic powerhouse.

The commission said it expects Germany to grow by only 0.1 percent in 2024, a downgrade from its previous forecast of 0.3 percent.

Although the EU's second biggest economy, France, is doing better with 0.7 percent growth expected in 2024, it was a cut from a previous prediction of 0.9 percent.