Europe's economy rode out the energy price crisis triggered by Russia's war on Ukraine with better than expected economic growth, Brussels said Monday, as it boosted its forecast.
The European Commission revised upwards its 2023 economic outlook, but also warned that inflation remains higher than hoped, maintaining pressure for higher interest rates.
The commission raised its 2023 growth outlook by 0.2 points to 1.1 percent for the 20-country eurozone single currency bloc, and to 1.0 percent for the EU as a whole.
It also raised the 2024 growth forecast for the eurozone by 0.1 points to 1.6 percent.
"The European economy is in better shape than we projected last autumn," the EU commissioner for the economy, Paolo Gentiloni, said in a statement.
"Thanks to determined efforts to strengthen our energy security, a remarkably resilient labour market and easing supply constraints, we avoided a winter recession and are set for moderate growth this year and next."
The eurozone inflation forecast has also been revised higher, the forecast rising 5.8 percent in 2023 compared to 5.6 percent in the previous outlook last last year.
- Recent turbulence -
Consumer price inflation is expected to drop back to 2.8 percent in 2024, still above the European Central Bank's two percent target.
"As inflation remains high, financing conditions are set to tighten further," the commission warned.
The EU executive also pointed to the recent turbulence in the banking industry during which a clutch of US regional lenders collapsed and Switzerland's troubled Credit Suisse was bought by UBS.
"Though the ECB and other EU central banks are expected to be nearing the end of the interest rate hiking cycle, the recent turbulence in the financial sector is likely to add pressure to the cost and ease of accessing credit, slowing down investment growth and hitting in particular residential investment."
Europe's better than expected results have been explained by energy prices falling quickly from their peaks after big gas exporter Russia launched a war against EU candidate Ukraine.
Last week wholesale EU gas prices were the lowest since the summer of 2021, well before the February 2022 invasion triggered energy sanctions and embargoes, Gentiloni said.
Electricity prices have fallen in tandem and oil prices are expected to fall this year, after a mild winter and efforts by EU energy producers to diversify suppliers.
Gentiloni also said that the EU labour market is the strongest it has been in decades, with eurozone unemployment rate at all all time low in March of 6.5 percent.
For the first time, the European Commission's forecast also includes estimates for Ukraine, Moldova and Bosnia-Herzegovina, candidates for EU membership.
After a 29 percent collapse in GDP last year due to the war, the Ukrainian economy is expected to stabilise this year with growth of 0.6 percent and may rebound in 2024, depending on progress in the conflict.
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