The EU is set to avoid recession – though not by much. The latest forecasts from the European Commission are that EU growth will be 0.8 per cent this year, up from the previous prediction of 0.3 per cent. This is well below last year’s growth rate of 3.5 per cent, but falling wholesale gas prices and a mild winter have reduced fears of a full scale recession.
Still, conditions will remain difficult. While the inflation rate is falling, real earnings will continue to fall as price growth outstrips wages. Recession remains a risk, largely depending on the course of the war in Ukraine, although the EU’s economy commissioner, Paolo Gentiloni, says that growth could also be higher if domestic demand remains strong. The fall in the EU’s reliance on Russian energy had been impressive, he said.
Ireland is again forecast to have the highest growth rate in the EU, with the commission expecting GDP to expand by 4.9 per cent, up from a previous forecast of 3.4 per cent. As has been widely discussed, the activities of multinationals mean that Irish GDP figures are heavily distorted. However, underlying growth here is still likely to be ahead of the EU average boosted, as the commission says, by a strong jobs market and by Covid savings which are allowing many households to continue spending.
A theme of the report is that inflation across Europe has peaked. For Ireland, it expects the inflation rate to fall to 4.4 per cent on average this year, from 8.1 per cent last year. This is based on wholesale energy prices not rising again.
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Two key points here are worth noting. First, while energy inflation is falling, inflation in other areas remain uncomfortably high, notably in food. The outlook for inflation generally thus remains uncertain.
Second, while the inflation rate may be falling, price levels remain high. Energy bills continue to cause huge problems in many less well-off households and all falls in these bills will be slow. This justifies an extension of cost-of-living supports, focussed on those who most need it, both in Ireland and elsewhere in the EU.
