Europe chart of the week: growth will slump in 2023

Chart - Heat map showing the real GDP growth rates we forecast across Europe in 2023.

High energy prices this winter will push much of Europe into a technical recession. As a consequence, the EU economy will record a 0.2% full-year contraction in 2023, with the broader region (including Russia and Central Asia) seeing just 0.1% growth. The largest decline in real GDP will be in Russia, as the sanctions imposed by the West in response to the war in Ukraine continue to weigh on the economy. In western Europe, Italy, Austria and Germany will be the worst hit by the energy shortages resulting from Russia’s cut-off of gas supplies, but the economies of the UK, France and Spain will also contract, with high inflation, falling confidence and weak external trade damaging growth across the region.

There will be some bright spots. Growth will be particularly robust in Central Asia, which is benefiting from strong oil export growth and growing ties with China, as well as in Serbia, given its warm relations with Russia (and therefore continued gas inflows). Norway is benefiting from higher gas export sales, and growth in Ireland is inflated by the large multinational sector. In Turkey, state spending in the run-up to the 2023 parliamentary and presidential elections will boost the economy (despite runaway inflation stoked by unorthodox monetary policy decisions). In Ukraine, there will be a slight return to growth from a very low level, after an economic contraction in excess of 35% this year.

The winter of 2023/24 presents some risks around energy supplies, as Europe will need to replenish its depleted gas storage without the usual inflows from Russia, and with new liquefied natural gas terminals coming online only gradually. Shortages of raw materials—a key constraint on business activity earlier this year—are now easing, but semiconductors will remain in short supply in 2023, and energy and food prices will remain high. Elevated inflation will continue to weigh on private consumption, and higher interest rates will dampen investment spending. Europe will also feel the effects of slower growth in the US in the context of monetary policy tightening, and in China given continued zero-covid protocols.

The analysis and forecasts featured in this piece can be found in EIU Viewpoint, our new country analysis solution. EIU Viewpoint provides unmatched global insights covering the political and economic outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.