“The EU economy is doing remarkably well during the Russian attack on Ukraine,” Commissioner and vice-president Valdis Dombrovskis said on Monday at the presentation of the spring economic forecasts. This is the second time in a row that the Commission has revised its growth forecasts upwards. Fears of a recession are disappearing, the Commission said. The finance ministers of the euro area countries will discuss the growth figures on Monday at their monthly meeting in Brussels.
The resilience of the economy is partly due to falling energy prices. The shut-off by Moscow of gas tap to Europe has been met by the import of gas and lng from other countries and energy saving by the citizens. Governments are compensating citizens and businesses for the increased energy prices. Furthermore, shortages of some goods (such as electronic chips) are decreasing. The European labour market is strong, with average unemployment at a record low of 6 percent.
The Commission estimates economic growth in the Netherlands this year at 1.8 percent of gross domestic product, falling to 1.2 percent in 2024. The Commission explains that the Netherlands will be below the EU average next year due to weakening exports and high inflation. Growth this year in Germany is one of the lowest in the eurozone at 0.2 percent, only Estonia (shrinking 0.4 percent) is doing worse. By 2024, the European Commission expects Europe’s largest economy to grow by 1.4%. Ireland is leading the way with growth rates of over 5 percent.
The increasing growth and the strong inflation (monetary devaluation) are causing the national debt to decrease. The average debt in the eurozone will fall from 93.1 percent in 2022 to 90.8 this year and 89.9 in 2024. That average conceals major differences: Greek debt this year is 160.2 percent (was 171.3 in 2022), that of Italy will reach 140.4 percent in 2023, according to the commission, that of Spain, France, Belgium and Portugal are well above 100 percent. The European budget rules prescribe a maximum debt of 60 percent. The national debt of the Netherlands (49.3 percent this year) is well below that.
There is also a wide spread in the funding gap between countries. The deficit in the Netherlands (2.1 percent in 2024, 1.7 percent next year) is below the maximum allowable 3 percent. Malta (5.1 percent), Belgium (5 percent), France (4.7 percent), Italy (4.5 percent) and Spain (4.1 percent) do not respect this budget rule. The Commission will call on these countries to take action.
The finance ministers are discussing a relaxation of budgetary discipline in the coming months. Minister Sigrid Kaag wants more customization so that countries with high debts have extra time to lower that mountain of debt. Kaag advocates ambitious targets, but does not support her German colleague who demands 1 percentage point debt reduction per year from countries with high public debt.
The commission emphasizes that the estimated drop in inflation in the eurozone (5.8 percent this year, 2.8 percent in 2024) could become fiction if the war in Ukraine escalates. Another risk is more turmoil in the financial markets, fueled by banks getting into trouble. Such turmoil deters investors which limits economic growth.