Europe set to avoid a recession as UK gets left behind

JACK BARNETT

EUROPE is poised to swerve a recession this year in a massive U-turn from warnings of blackouts sweeping across the bloc according to forecasts out yesterday.

The recovery has largely been fuelled by strong GDP figures in Ireland, as growth in the European Union (EU) is expected to hit 0.8 per cent this year, an upgrade from the just 0.3 per cent forecast last autumn, according to the European Commission (EC).

The upgrade means the continent is now poised to skirt a technical recession, defined as two consecutive quarters of negative growth.

Britain, on the other hand, is forecast to tumble into a reversal lasting 15 months and shaving around one per cent off GDP.

“The slowdown in the third quarter turned out milder than previously estimated and in the fourth quarter, the EU economy managed a broad stagnation, instead of the 0.5 per cent contraction expected in autumn,” the EC said in its latest economic forecasts.

The Republic of Ireland is on course to be Europe’s economic powerhouse this year, with GDP expanding nearly five per cent.

The EC attributed expectations of robust growth to “a strong labour market together with very high household savings underpinning further private consumption growth”.

Germany, the bloc’s historic industrial engine, will only squeeze out 0.2 per cent output growth in 2023, while France will notch a 0.6 per cent expansion.

Economists had rushed out dire warnings about Europe suffering blackouts as a result of Russia sucking energy supplies from the market in retaliation to sanctions imposed on Moscow after the Kremlin launched its invasion of Ukraine. However, a rapid build-up of liquified natural gas supplies from the US and Qatar, weaker energy spending in China and a milder winter helped re- balance the European energy market.

As a result, those initial economic projections now look overcooked.

Inflation is still running extremely hot on the continent despite high gas prices unwinding, hitting 8.5 per cent last month, although it has declined for a few months in a row.

“Consumers and businesses continue to face high energy costs, and with more than 90 per cent of the core items in the HICP basket registering above-average price increases, inflationary pressures are still broadening,” the EC said.

The European Central Bank (ECB) has raised interest rates quickly to tame price pressures, backing two consecu- tive 50 basis point increases and a 75 basis point rise before that.

But the spreading of price pressures means ECB president Christine Lagarde and the governing council’s tightening cycle is “set to continue, exerting a drag on investment,” the EC said.

European interest rates had been negative for several years in a bid to boost spending.

Lagarde and co also lagged behind the Bank of England and US Federal Reserve in 2022, meaning they are set to play catch up this year.

Investors are expecting European borrowing costs to peak at around 3.5 per cent.