Europeans have been overwhelmed by the impact of inflation over the past 12 months. The European Commission published ’'s Autumn Forecast in November, which highlights the dispersion of clouds and the espite falling below ’, growth seems stubbornly low.
Real EconomyIn this part of the ’, we ask whether businesses and consumers really see a drop in prices, and we look forward to how Europe’'s economic growth will develop in the coming months.
Despite the decline in inflation, food prices are rising
Annual inflation in ’ is among the lowest in the eurozone. The prices of energy, transportation and some raw materials have stabilized in recent months. But many customers and businesses don't see a drop in food prices.
Yacin Malkoç, manager of a Belgian grocery store, said that “ is more or less used in fruits and vegetables, especially strong products such as bananas, mushrooms or tomatoes. %There was an increase of 30’, ” said.
“In the past, fruit and vegetables could reach any budget, but today there is a significant decrease in the number of customers due to increasing prices.”
Food prices in ’ continued to rise in 2023’te. For example, in two years, there was an increase of 37 percent in eggs, 53 percent in potatoes and 75 percent in olive oil.
In recent months, however, these prices have risen more slowly. But will companies and households feel the difference in their wallets as European countries' anti-inflation measures come to an end?
European Commissioner Paolo Gentiloni told Real Economy’ye: “According to our estimates, the rise in wages will catch up with inflation. And, of course, this will contribute to purchasing power, this will increase consumption, and the increase in consumption is the premise of restarting growth. So there is a bit of moderate optimism towards 2024’.
In terms of inflation, Commissioner Paolo Gentiloni says energy prices will play a major role.
The decline will continue at a lower pace for now, “ said. “I think there is a high probability that it will start again the growth that is absolutely necessary for our economy.”
Why are European companies so concerned about energy?
The cost and supply of energy remains a major concern for large industrial companies. Etex, a Belgium-based multinational company, needs a significant amount of energy to produce construction products.
The company's CEO, Bernard Delvaux, says inflation in energy costs is fueling the search for a more efficient alternative.
Everything about reducing “ consumption is clearly important, ” said. We have plans to reduce internal consumption by investing in more efficient technologies in our “160 factory.”
Annual energy inflation in the Eurozone ’ fell sharply, from 41.5 percent at the end of 2022 to -11.2 percent at the end of 2023.
However, due to the increase in interest rates, the costs of Etex’in increased and the demand for construction fell.
Bernard Delvaux, “Energy is two or three times more expensive than two years ago; This is also much more expensive than ’ in the United States, much more expensive than ’ in China, and much more expensive than ’ in the Maghreb. So why not produce in these countries? And then salaries are clearly higher because of inflation. What we're seeing is that production is becoming increasingly expensive in Europe’, he added.
But if the cost of energy is falling, can we expect more competitive prices in the near future? Energy geopolitics professor Adel El Gammal told Real Economy’ that this is all extremely uncertain“ due to a combination of many factors.
Adel El Gammal, “EuropeIn ’, we still source liquefied natural gas from pipelines and from ’, Russia. Therefore, a complete rupture can indeed put the markets under tension. And then, of course, the crisis in the Middle East’. It is easy to imagine that the prolongation of the conflict –, for example Iran or Saudi Arabia’'s greater integration could clearly disrupt the situation completely.– said.
‘This is a balancing action’: Probability of stagflation in the European ’
Adel, meanwhile, points out that according to IMF’, nearly half of the inflation over the past two years has been due to an increase in the profit margins of large companies that have benefited from the price increase.
Although inflation has fallen, the situation remains fragile.
However, it is difficult to return to the 2% “ inflation target. Trying to keep inflation at acceptable rates without going into a recession is a balancing act. Here we clearly see the rather serious specter of possible stagflation, which means economic decline with low economic growth or high inflation. Unfortunately, it is a risk we will face in the coming quarters.”
European Commission’nda Paolo GentiloniWe asked ’ye whether the slowdown in economic growth will continue next year.
“We have achieved near-zero growth at the end of the year. Next year, we forecast a slight recovery in growth, mostly due to the resumption of private consumption and at the same time a slightly better state of international trade. If this turns out to be true, we will be able to prevent a recession and achieve what we call a soft landing despite tight monetary policy. That would be great on its own. - ”
If Europe manages to mitigate the impact of the price crisis in the coming months, consumers will need to be patient and hope that the current geopolitical conflicts are resolved as soon as possible.
