European Commission – Euro Area Report, 2024

The euro-area economy experienced a strong deceleration in 2023 following a rebound in 2022. Despite the rapid rise in energy prices, the euro area managed to avoid a recession. The robust labor market has been a key factor in maintaining macroeconomic resilience and supporting aggregate demand. However, high consumer prices and tightening financing conditions have resulted in a loss of growth momentum throughout the year. GDP for the euro area is expected to grow by 0.6% in 2023, with some member states experiencing negative growth. Rising nominal wages are projected to gradually increase real disposable incomes and support a mild rebound in consumer spending. Recent survey results indicate weak economic activity, particularly in industry, although some marginal improvements are expected in the coming months. The growth of exports is expected to be moderate due to a challenging global environment, therefore, domestic demand will be the main driver of growth. Overall, GDP for the euro area is projected to grow by 1.2% in 2024 and 1.6% in 2025. Energy prices have decreased, while inflation, excluding energy and food, remains high but is gradually falling. Euro area headline inflation fell sharply in October to 2.9% from 4.3% in September and the peak of 7.7% in October 2022. The decline was primarily driven by falling energy prices and a moderation in other components. Food inflation, although declining, remains elevated. Services inflation also decelerated, albeit at a slower pace, due to wage growth and strong demand for contact-intensive services and tourism. Tightening monetary policy and contractionary fiscal policies have helped ease inflationary pressures. Overall, headline inflation in the euro area is projected to decline.