European Commission Winter Forecasts for 2023
According to forecasts for Cyprus, the country's real GDP continued to grow steadily, increasing by 6.1% in the first three quarters of 2022
The European Union economy will avoid recession but headwinds remain, according to the European Commission's interim winter economic forecasts for 2023 presented by Economy Commissioner Paolo Gentiloni in Brussels on Monday morning.
According to forecasts for Cyprus, the country's real GDP continued to grow steadily, increasing by 6.1% in the first three quarters of 2022 compared to the same period last year. Despite rising inflation, private consumption remained strong, supported by employment and wage growth, as well as targeted government measures to offset high energy prices.
Tourism also contributed, with arrivals rebounding after the pandemic to reach 80% of 2019 levels. In addition, exports of business services rose significantly. On an annual basis, real GDP growth is estimated to have increased by 5.8% in 2022.
Economic sentiment among consumers and businesses improved slightly in January 2023. The improved economic prospects of the countries that are trading partners of Cyprus are expected to further support tourism, which is expected to reach almost the level of 2019.
The 50% wage indexation implemented in January 2023 is expected to support purchasing power to some extent. However, rising interest rates are expected to weigh on corporate investment and housing construction. Higher prices and tighter monetary policy are expected to weigh on real GDP growth, which is forecast to slow to 1.6% in 2023 and pick up to 2.1% in 2024.
Inflation based on the harmonized index of consumer prices (HICP) rose to 8.1% in 2022 due to high energy prices and problems in the supply chain. HICP inflation is expected to decline over the forecast horizon, as falling gas and oil prices will reduce energy inflation and supply disruptions will further ease.
Conversely, wage indexation is expected to exert some upward pressure on core inflation. Overall, HICP inflation is expected to average 4% in 2023 and 2.5% in 2024.
According to pan-European forecasts, one year after the start of Russia's invasion of Ukraine, the EU economy enters 2023 in better shape than expected in the autumn, with growth forecast at 0.8% in the EU and 0.9% in the eurozone.
As recorded in the forecasts, the eurozone and the EU are expected to narrowly avoid the recession expected, while inflation forecasts are also being reduced in 2023 and 2024.
In particular, in terms of growth, after the growth seen in the first half of 2022 there was a slowdown in the third quarter, but lower than expected. The annual growth rate for 2022 is now estimated at 3.5% in the EU and Eurozone.
At pan-European level, the more positive forecasts are attributed to the continued diversification of energy sources and the fall in natural gas consumption which has resulted in natural gas stocks being above the seasonal average of the past years, while wholesale gas prices are now lower than before the war.
At the same time, the pan-European unemployment rate has remained low at 6.1% until the end of 2022, and readings in January show that economic activity will avoid a potential contraction in the first quarter of 2023.
However, challenges remain as consumers and businesses continue to face high energy prices, at a time when that core inflation (inflation excluding energy and unprocessed food) was still rising in January, further undermining household purchasing power ladies.
