By contrast, price pressures could turn out more persistent, prompting a stronger response of monetary policy. Furthermore, monetary tightening may weigh on economic activity more heavily than expected, but could also lead to a faster decline in inflation that would accelerate the restoration of real incomes. Russia’s ongoing war of aggression against Ukraine and wider geopolitical tensions continue to pose risks and remain a source of uncertainty. HICP inflation is expected to continue declining, broadly in line with the spring projections. Overall, this forecast revises growth down for the EU and the euro area in both 20. The other non-energy components of the consumption basket will continue contributing to easing inflation over the forecast horizon, also reflecting lower input prices and normalising supply chains. Inflation in services is set to continue moderating as demand softens, under the impact of monetary policy tightening and a fading post-COVID boost. They are projected to increase slightly again in 2024, driven by higher oil prices. Retail energy prices are set to continue declining for the remainder of 2023, but at a slowing pace. However, a mild rebound in growth is still projected next year, as inflation keeps easing, the labour market remains robust and real incomes gradually recover.

As the outlook for global growth and trade remains broadly unchanged compared to spring, the EU economy cannot count on strong support from external demand. The weaker growth momentum in the EU is expected to extend to 2024, and the impact of tight monetary policy is set to continue restraining economic activity. The latest economic developments for 21 other Member States are addressed in the overall analysis and are factored into the calculation of the EU and euro area aggregates. Disclaimer: The Summer 2023 Economic Forecast comprises GDP and inflation projections for the six largest EU Member State economies, the euro area and the EU as a whole.

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