Eurozone Faces Shallow Recession in 2023 But Long-Term Growth Outlook Remains Gloomy Due to Demographics, Stalled Reforms, and Divisions Within EU
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The euro zone is facing a recession, but it is expected to be shallow rather than deep. Growth will remain low in 2023 due to high interest rates, tighter budgets, and other economic headwinds.
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Beyond 2023, the outlook remains poor due to shrinking working-age population and weak productivity gains. The EU's potential growth rate is declining and expected to be just 1.2% by 2027.
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The euro zone is struggling to rebound unlike the US, partly due to stalled integration, lack of reforms, and unwinding past progress. Germany in particular is dragging down growth.
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EU institutions have become less efficient compared to the 1990s. Firms are hoarding workers due to labor shortages, which may reduce productivity.
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EU governments are divided on key issues like migration, banking union, and central spending, limiting ability to shape the bloc's future growth.