After a prolonged period of stagnation, the EU economy is once again showing moderate growth, while the process of falling inflation continues. The European Commission's autumn forecast states that in 2024 GDP growth will be 0.9% in the EU and 0.8% in the euro area. Economic activity is forecast to rise to 1.5% in the EU and 1.3% in the euro area in 2025, and to 1.8% in the EU and 1.6% in the euro area in 2026.
Headline inflation in the euro area is expected to fall by more than half in 2024 — from 5.4% in 2023 to 2.4% — after which the decline will be more gradual, to 2.1% in 2025 and 1.9% in 2026. In the European Union the fall in inflation is forecast to be even steeper in 2024: headline inflation will drop from 6.4% in 2023 to 2.6%, continuing down to 2.4% in 2025 and to 2.0% in 2026.
As consumption rises and investment resumes, growth will pick up
After growth resumed in the first quarter of 2024, the EU economy continued to expand at a steady, if moderate, pace in the second and third quarters.
Disposable incomes continued to increase as a result of employment and real wage growth, but household consumption remained subdued. The still high cost of living and greater uncertainty following repeated extreme shocks, compounded by financial incentives to save in a context of high interest rates, led households to save an ever larger share of their income. At the same time, investment was disappointing, with a deep and broad-based downturn across most Member States and asset categories in the first half of 2024.
The restraint on consumption appears to be easing. With the purchasing power of wages gradually recovering and interest rates falling, consumption is expected to continue to grow. Thanks to robust corporate balance sheets, recovered profits and better lending conditions, investment is expected to resume. The impetus from the Recovery and Resilience Facility and other EU funds will also drive an increase in public investment over the forecast period.
Overall, economic growth is forecast to be driven by domestic demand going forward. Exports and imports are expected to grow at broadly the same rate in 2025 and 2026, meaning that the net trade contribution to growth will be neutral.
The fall in inflation continues
Despite a slight uptick in inflation in October, the fall in inflation that began at the end of 2022, driven largely by energy prices, is continuing.
Price pressures in services remain high, but are forecast to moderate from the beginning of 2025, helped by slowing wage growth and an expected rise in productivity, and supported by negative base effects. This sets the conditions for inflation to fall to target by the end of 2025 in the euro area and in 2026 in the EU.
The labour market remains strong and unemployment is at a record low
The EU labour market was stable in the first half of 2024 and is expected to remain strong. Employment growth in the EU is forecast to continue, albeit at a slower pace, from 0.8% in 2024 (0.9% in the euro area) to 0.5% in 2026 (0.6% in the euro area).
In October the EU unemployment rate reached a new historic low of 5.9%. It is forecast to be 6.1% for 2024 as a whole (6.5% in the euro area) and then to keep falling, dropping to 5.9% in 2025 and 2026 (6.3% in the euro area).
Thanks to fiscal consolidation, the budget deficit is falling
As many Member States work to reduce their debt ratios, the EU general government budget deficit is expected to fall by around 0.4 percentage points in 2024, dropping to 3.1% of GDP, and to 3.0% in 2025. Driven by the positive economic momentum, the deficit is forecast to keep falling to 2.9% in 2026. According to the forecast, the euro area deficit will fall from 3.0% in 2024 to 2.9% in 2025 and 2.8% in 2026.
The EU's aggregate debt-to-GDP ratio, however, is expected to rise from 82.1% in 2023 to 83.4% in 2026. This follows a decline of almost 10 percentage points between 2020 and 2023 and reflects the impact of still elevated primary deficits and rising interest expenditure, which, as inflation eases, is no longer offset by high nominal GDP growth. General government debt in the euro area is forecast to increase from 88.9% of GDP in 2023 to 90% in 2026.
Uncertainty and risks are increasing
Uncertainty and downside risks to the outlook have increased. Russia's protracted war of aggression against Ukraine and the intensified conflict in the Middle East pose geopolitical and energy security risks. Growing protectionist measures by trading partners could restrict global trade, with a negative impact on the EU's very open economy.
On the domestic front, policy uncertainty and structural problems in manufacturing could further erode competitiveness and weigh on growth and the labour market. In addition, delays in implementing the RRF, or a stronger than expected impact of fiscal consolidation, could further hold back the resumption of growth. Finally, the recent floods in Spain illustrate the dramatic consequences that the increasing frequency and scale of natural hazards can have not only for the environment and the people affected, but also for the economy.
Background
This forecast is based on a set of technical assumptions about exchange rates, interest rates and commodity prices, reflecting the situation as at 31 October. For all other incoming data, including assumptions about government policies, this forecast takes into account information available up to and including 25 October. Unless policies are credibly announced and specified in sufficient detail, the projections assume no policy change.
The European Commission publishes two comprehensive forecasts each year (in spring and autumn), covering a broad range of macroeconomic and fiscal variables for all EU Member States, candidate countries, EFTA countries and other major advanced and emerging market economies.
Full text of the document: Autumn 2024 Economic Forecast