Europe: Economic overview

The European Union (EU) is a unique economic and political union between 27 countries. Economic forecasts for the EU-27 vary due to the volatile global economic headwinds in 2022. The International Monetary Fund estimated 2022 GDP growth at 1.9%. Whereas, the European Commission (EC) autumn forecast is 3.3%, revised upwards due to stronger than expected performance early in the year. Both predict GDP dropping sharply to just 0.3% in 2023. Inflation seems to have peaked at 9.3% in 2022 but will remain relatively high at 7% in 2023.

The EU has been heavily impacted by the war in Ukraine, due to its geographical proximity and its reliance on fossil fuels. The sharp rise in inflation has been driven, like many other countries, by food, fuel and commodity price increases caused by the conflict and the subsequent supply chain disruption. This has impacted real disposable incomes and slowed GDP growth, which is expected to continue until spring 2023, when the reduction in inflation will allow a return to weak positive growth.

On a positive note, the EU has a strong labour market which, although impacted by the economic slowdown, will allow its economies to recover more swiftly once the inflationary pressures feed through in late 2023. This is in sharp contrast to the UK, where labour shortages as a result of Brexit will constrain economic recovery.

Table 1. Real GDP growth, year on year % change

20212022 (f)2023 (f)
EU 27 5.4 1.9 0.3


Source: IMF