Several of the countries that previously underwent bailouts and painful reform programmes during the last financial crisis are forecast to lead growth in the European Union this year in a reversal of fortunes as the energy crisis hit economic stalwarts like Germany.
Ireland was forecast to be the fastest growing economy in the EU once again at 5.5 per cent in 2023 and 5 per cent the following year, a performance driven by multinational exports but also supported by strong private consumption.
However Greece, Portugal, Cyprus and Spain were all close to the top of the table of economic growth in the European Commission’s forecast for 2023, with levels of economic growth forecast to be well over the EU average of 1 per cent.
The Greek economy was forecast to be see the fourth strongest growth in the EU at 2.4 per cent this year, a level matched by Portugal and followed by Cyprus on 2.3 per cent and Spain on 1.9 per cent.
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Greece enjoyed a strong economic rebound last year as tourism recovered following the Covid-19 pandemic, and its economy grew 5.9 per cent as it recorded a budget surplus. It is now close to regaining its investment-grade rating a decade since some argued for it to be expelled from the euro zone as its credit rating outlook was upgraded to positive by agency S&P last month.
Asked about the Spanish banking sector as she arrived for a the Eurogroup meeting of finance ministers, Spain’s deputy prime minister and economy minister Nadia Calviño said the picture had changed deeply in a decade. “The Spanish banking system has undergone a major transformation, significant consolidation process, a deep restructuring and cleaning up of the balance sheets which makes our banking sector one of the most solvent and strongest right now,” she told reporters.
She suggested that other countries were less prepared for economic stressors now. “Indeed, there are many other countries that have not undergone this major transformation and in-depth restructuring in the last decade.”
The forecast for Portugal was described as “positive” by Economy Commissioner Paolo Gentiloni, who said that its “budgetary balance is better than other member states”.
Meanwhile, Italy was expected to narrowly outperform the average with 1.2 per cent growth in 2023, something that Mr Gentiloni said was partly helped by the Covid-19 stimulus programme, of which the country was the EU’s largest recipient.
Inflation in Ireland is forecast to be below the EU average of 6.7 per cent as it eases to 4.6 per cent this year and falls further next year, but is set to remain well above target levels despite hikes in interest rates.
Minister for Finance Michael McGrath called on businesses to “play their part” in reducing price pressure on households as he arrived for the Eurogroup meeting following a warning from the European Central Bank that companies were taking advantage of inflation to gouge consumers.
“Prices went up very quickly at a retail level when wholesale prices shot up,” Mr McGrath told reporters. “Wholesale prices have now come down dramatically, but we’re not seeing the reduction for end consumers.”
The energy crisis caused by Russia’s invasion of Ukraine has hit many countries close to its borders hard, bringing investment slumps and steep inflation.
The economies of both Estonia and Sweden are expected to shrink this year, while others including Germany, Austria, Finland, Denmark and Czechia are forecast to hardly grow.
Overall, however, Mr Gentiloni said that the economic picture was “much better than expected” and that the EU had avoided a recession this winter. “If we look back to what we were expecting last autumn the scenario is much, much better.”
