The executive commission of the European Union raised its economic growth forecast. States that Europe had avoided a winter recession that had been feared amid an energy crisis. But cautioned that persistently high inflation would continue harming the economy by eroding consumers’ spending power.
According to the European Commission’s spring forecast released on Monday, the outlook for the 20 countries using the euro has improved to 1.1% growth this year from 0.9% in February.
Valdis Dombrovskis, executive vice president of the European Commission, said in a statement that the European economy “is holding up remarkably well in the face of Russia’s aggression against Ukraine.”
Europe anticipated a winter energy catastrophe after Russia cut off most natural gas supplies to the continent during the Ukraine conflict. Prices for the gas required to heat residences generate electricity. And power factories reached all-time highs, causing sharp increases in consumer prices.
Europe could get through the winter without a significant energy crisis. Thanks to a frantic effort to secure new sources of natural gas. Including more expensive shipments of liquefied gas by ship, a mild winter, and reduced consumption.
Core-inflation remains
However, Dombrovskis cautioned that “core inflation remains persistently high. Which could erode people’s purchasing power, slow investment growth, and impede access to credit.”
Core inflation excludes volatile food and petroleum prices. And is regarded as a more accurate indicator of price pressures in the economy than the overall figure, which reached 7% in April.
Europe’s economy faces persistent challenges from spikes in consumer prices. And rising interest rates that the European Central Bank is using to return inflation to the bank’s target of 2%. The economy barely scraped out 0.1% growth in the year’s first three months.
Higher financing costs for consumers and businesses have decreased. The availability and demand for loans for home purchases and business investment.
Recent turmoil influencing banks in the United States presents an additional obstacle. Three financial institutions have failed in recent months.
While European officials assert that their banks are not directly exposed to U.S. difficulties, regulators and shareholders’ increased scrutiny of bank finances may make banks even more hesitant to lend.
In Europe, banks are the primary source of business financing. Whereas in the United States, financial markets provide the majority of credit.
The European Commission has increased its economic growth forecast for the coming year from 1.5% to 1.6%.