The Eurozone is set for stronger economic growth next year, driven by an upswing in domestic demand, despite facing potential challenges from global trade protectionism. According to the European Commission's Autumn Forecast, the growth outlook for 2024 remains steady at 0.8 percent, as the currency bloc navigated through the second and third quarters with moderated growth amidst easing inflation pressures.
In 2025, growth is anticipated to reach 1.3 percent, fueled by increased consumption and a recovery in investment from the previous year's downturn. Notably, the earlier Spring report had estimated this growth at 1.4 percent. Looking ahead to 2026, the forecast predicts growth to rise to 1.6 percent, underpinned by continued improvements in demand.
However, the EU emphasizes that economic outlook remains fraught with uncertainty, with risks heavily skewed to the downside. Among these are potential escalations in global conflicts, notably in Ukraine and the Middle East, and the possibility of amplifying protectionist policies from trading partners, which could adversely impact global trade.
Germany's economy is projected to contract by 0.1 percent this year, hindered by weak consumption and investment. Nonetheless, a recovery is expected, with growth projected to improve to 0.7 percent next year and further to 1.3 percent by 2026.
In France, economic activity demonstrates resilience in 2024, bolstered by public spending and international trade. From a growth estimate of 1.1 percent this year, GDP is projected to expand by a more subdued 0.8 percent in the following year, before accelerating to 1.4 percent by 2026.
Meanwhile, Spain is forecast to experience robust expansion this year, with a growth rate of 3.0 percent, before tapering to 2.3 percent in 2025 and 2.1 percent in 2026. Italy's real GDP is predicted to grow by 0.7 percent in 2024, driven by investment and a decrease in imports, with further expansions of 1 percent in 2025 and 1.2 percent in 2026 as consumption strengthens.
The EU reports that the disinflationary trend, initiated late 2022, persisted through the summer, with headline inflation in the euro area predicted to more than halve from 5.4 percent in 2023 to 2.4 percent this year. A more gradual decline to 2.1 percent is forecast for 2025, reaching 1.9 percent by 2026. The inflation outlook for this year has been revised down from 2.5 percent, while the next year's projection remains unchanged.
With inflationary pressures being largely contained, the European Central Bank is anticipated to implement more significant and earlier interest rate cuts than previously expected. By the close of 2025, the policy rate is expected to decrease further to approximately 2 percent, which is 60 basis points lower than spring forecasts, maintaining near this level throughout the forecast period.
The unemployment rate is expected to fall to 6.3 percent next year from 6.5 percent in 2024, stabilizing at this level through 2026.
