Europe and the EURO– 2023 Outlook
The outlook for the euro zone has deteriorated with weaker growth, tight labor market, and higher and more persistent inflation in 2022. While headline inflation may have finished the year at a lower level that initially predicted, it was partly due to Germany’s one-off government support. Core inflation, however, actually rose, which has led to an increase in inflation.Ased While there are strong expectations of a brief and shallow recession in 2023, the case for further ECB increases remains strong.
As the economic effects of war in Ukraine unfold and intensify inflationary pressures in the economy, consumer and business confidence has remained low. Real disposable incomes are being eroded, and production is being cut, especially in energy-intensive sectors, due to rising costs. It’s anticipated that fiscal policy measures will ,to some extent, help to lessen the adverse economic effects.
Due to the high level of natural gas inventories, ongoing efforts to reduce Russian gas demand, and continued efforts to replace it with alternatives, the euro zone is expected to avoid any mandated energy production cuts. But, there are still potential risks to disruptions in energy supply.