2023-09-13 13:59:27
A few days before the European Central Bank (ECB) decides on the evolution of its monetary policy, Brussels has published its summer economic forecasts, which point to a slowdown in inflation in the eurozone, but also to a loss of income, even though employment will remain “robust.” They also reveal that the cooling in demand for housing loans will have an impact on housing prices, predicting a “slight fall.” Despite the current uncertain context, the Eurozone economy will continue to grow (although only slightly).
“Monetary policy is working as planned, as demonstrated by the continuous and marked slowdown in the granting of credit to the private sector,” says the Community Executive in the document published last Monday, September 11. This contraction in demand has also been felt in housing credit at the European level, which should be reflected in prices.
“It is expected that House prices in the European Union fall slightly in nominal terms this year, with persistent variations between countries,” says the European Commission. The only reason house prices will not fall further is because there is a limited supply of housing in most EU countries, due to the drop in new construction in recent months (which is expected to continue). This forecast from Brussels is reinforced by predictions of a new drop (albeit milder than previous ones) in household and credit demand. companies in the third quarter.
After all, although the EC considers that employment in the eurozone remains “robust”, it admits that the tightening of monetary policy could deteriorate the income of families and companies, further restricting domestic demand. “The weakness of domestic demand, particularly consumption, shows that the high and still rising consumer prices of most goods and services are having a stronger impact than expected in the spring forecasts,” they explain in the document.
Inflation slows and the eurozone economy grows little
Still, when it comes to inflation, Brussels forecasts inflation of 5.6% this year and 2.9% in 2024 in the eurozone, thus revising its previous forecasts downwards. The measures adopted, such as raising interest rates, could “lead to a faster than expected fall in inflation, which would accelerate the recovery of real income,” he notes.
But nothing is certain in the future, warns the EC. “The evolution of inflation could surprise both downwards and upwards”, since the weakening of domestic demand could lead to it being “less persistent than expected”, but it could also force wage increases, which would require “a more energetic reaction of monetary policy, with negative repercussions on growth,” he explains.
Despite this uncertain economic context, the eurozone economy continues to grow, although at a slow pace. According to the EC summer forecasts, The Eurozone economy will grow by 0.8% in 2023 and 1.3% in 2024. And that of the European Union will grow by 0.8% in 2023 and 1.4% in 2024, below the spring forecasts.
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