EU economic growth forecast slightly higher this year, EC says

Originally published at Europe in Review on June, 2023

The European Union (EU) economic outlook for this year has improved slightly as energy prices decline across the bloc, according to the European Commission (EC) Spring Economic Outlook released May 15. [EC]

The EU’s economy is forecast to grow by 1 percent in 2023, compared to the previous forecast of .08, the EC said in the report. Economic growth will increase to 1.7 percent next year, the EC said. [EC]

“The EU weathered the energy crisis well thanks to the rapid diversification of supply and a sizable fall in consumption,” the EC said. “As the EU approaches the gas-refilling season, gas storage levels are at comfortable levels and risks of shortages during next winter have considerably abated.” [EC]

Reflecting this, natural gas storage is on track for overfilling by mid summer at a record 56 percent full in April and 66 percent full at the end of May. This means Europe will not have enough room to store imported gas by the end of the summer and should be well positioned for winter 2023-24. [GIE] [Reuters][Reuters EUR Gas INV]

Norway, whose pipeline exports to Europe were already significant prior to the Russian invasion of Ukraine, is now Europe’s largest natural gas supplier after the demise of Russian imports in 2022, and is currently courting energy companies to expand production further in its Arctic Barents Sea coastal economic zone. [CNBC]

Principally the U.S., but also Canada, Australia, and the Middle East have largely replaced Russian natural gas through an expansive increase in liquified natural gas (LNG) exports to Europe, which are set to increase in future years as exporters bring new capacity online. [WSJ]

Monthly LNG imports to Europe increased from approximately 10 to 25 percent of total gas imports in 2021 to over 55 percent in 2022, while Russian pipeline gas dropped from over 40 percent to under 5 percent.

The significant increase in new supply has led energy traders to express concern that natural gas prices could decrease below zero for the first time since 2006. [Bloomberg]

Despite the improvement in energy supplies, “inflation keeps eroding the purchasing power of consumers,” the EC said. Following the fall in the last quarter of 2022, private consumption is expected to have weakened again in the first quarter of this year. [EC]

Overall, private consumption growth in the EU in 2023 is projected at 0.5 percent. As inflation loosens its grip on households’ budgets, private consumption is set to rebound to 1.8 percent in 2024. The household saving rate is projected to decrease in the EU from 13.2 percent in 2022 to 12.8 percent in 2024, in line with its long-term average.

(rw/gc)