BusinessEurope Economic Outlook Autumn 2023 - Growth muted as high interest rates impact consumption and investment

Economic situation

The European economy continued to grow sluggishly in the first half of 2023 as the impact of higher interest rates curbed demand against a backdrop of continuing geopolitical tensions, a slowing global economy, and increasing long-term competitiveness challenges.

Industrial production levels have declined since the start of the year, although this hides the divergence in growth between sectors, with, in particular, energy-intensive industries remaining under exceptional pressure.

We expect economic growth to recover moderately in 2024 as household spending recovers and international trade activity picks up. High interest rates continue to put a drag on investment growth and will make it more difficult to meet the investment needs of the green and digital transitions.

Our central forecast is for growth to slow down to 0.7% in the EU in 2023, before increasing to 1.4% in 2024. This is a small downward revision of 0.2 pp. for 2024 compared to our Summer Economic Outlook.

Economic projections

Policy recommendations

• In face of continued above-target inflation, the ECB and other European central banks have rightly acted to bring inflation down, and in particular, ensure that long-term inflationary expectations do not rise.
• With wages now rising in some Member States faster than inflation and productivity growth combined, it remains crucial that social partners engage responsibly in collective bargaining on wages and help avoid a self-defeating wage-price spiral.
• It is important that the more restrictive monetary policy stance is complemented by Member States’ fiscal policy stances. Given high debt and deficit levels in some countries, agreement on new fiscal rules is urgently needed to provide a credible and respected framework to maintain public finance sustainability in the EU.
• As global competition intensifies, a comprehensive strategy aimed at enhancing the long-term competitiveness of the European economy will be key to improving Europe’s business environment.