Economists Forecast Weak Eurozone Growth in 2024

A Financial Times survey reveals economists expect only slight eurozone growth in 2024, with geopolitical risks looming.

How will Europe's economy develop in 2024?

The FT survey, encompassing the views of 48 economists, reveals a consensus that the eurozone may already be experiencing a recession. Paul Hollingsworth from BNP Paribas describes the current state as stagnation rather than a full-blown recession, with expectations of gradual recovery by 2024. The majority of economists forecast a mild and brief contraction, with a return to slight growth in early 2024. However, they caution against possible deeper downturns due to high interest rates, energy market disruptions, and geopolitical instability. The projected growth rate for the eurozone economy is just over 0.6% for the next year, lower than the estimates by the European Central Bank and the International Monetary Fund.

Eurozone GDP chart

Geopolitical Risks And The Eurozone's Future

Economists highlighted significant geopolitical risks that could further weaken the eurozone's economy, including the potential re-election of Donald Trump in the US and the outcomes of the conflict in Ukraine. Vítor Constâncio, former ECB vice-president, pointed to recessions in Germany or Italy and a Trump victory as major risks. Holger Schmieding from Berenberg emphasized the adverse effects of a Trump win, while Mahmood Pradhan from Amundi Asset Management pointed to the prolonged restrictive monetary policy as a major concern, especially in Germany. Despite this, two-thirds of respondents anticipate positive growth in Germany next year.

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Inflation, Wage Growth, And Labor Market Outlook

Inflation in the eurozone is expected to near the ECB's 2% target within two years. Consumer prices are projected to rise by just over 2.5% in 2023 and slightly below 2.1% in 2025. Wage growth, while weaker than the ECB's forecast, is predicted to be under 4%, indicating an increase in real household income for the first time in three years. However, economists are more pessimistic about the labor market than the ECB, forecasting unemployment to rise from 6.5% to 6.9% by the end of next year. Sylvain Broyer from S&P Global Ratings warns that a labor market slump could significantly impact the economy.

Real Estate Market And Past Predictions

The survey forecasts a further 1.6% decline in residential house prices next year, reflecting slow growth and higher mortgage rates. Nearly half of the economists expressed concerns about a brewing crisis in the commercial property sector. Looking back at last year's predictions, economists were somewhat too pessimistic due to the energy crisis from Russia's invasion of Ukraine. The eurozone's swift shift from Russian gas imports mitigated some of the negative impacts, leading to slightly better-than-expected growth and inflation figures as forecasted by the ECB.

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