Eurozone economy is likely to perform better this year than first anticipated due to a mild winter, significant gas storage, and a stable labour market.

The European Commission predicts that the euro-zone economy will perform better this year than first anticipated because of a mild winter, significant gas storage, and a stable labour market.

Officials from the European Union in Brussels increased their growth projection for this year, projecting a 0.9% increase in the currency union and said it would narrowly avoid a recession. They reduced their forecast for consumer price rise as well, but it is still high at 5.6%. 

In its latest economic report released on Monday, the commission said that "almost a year after Russia began its war of aggression against Ukraine, the EU economy is on a stronger footing than predicted in September." "Favourable trends in the energy markets indicate additional sharp falls, and inflation looks to have peaked."

The heightened confidence stands in contrast to predictions made in November when policymakers expected that the euro zone's gross domestic product would only rise by 0.3% this year and that inflation would be 6.1%.

The latest estimates will be keenly studied by the governments of Europe as they attempt to wean individuals and companies off huge subsidies and switch to more targeted assistance in order to address the energy issue. The central bankers who have started a series of rate rises in an effort to rein in surging inflation will also benefit from their knowledge.

All EU member states will expand this year, as per the most recent commission projections, with the exception of Sweden, which is predicted to decrease by 0.8%.

Only two nations in the eurozone—Germany, which has the largest economy in the region, and Austria—were seen to have had two consecutive quarters of recession in the six months ending on March 31. The output of Estonia declined over the final three quarters of 2022, but it is now expected to increase.

The commission expects that, following a minor decrease in the fourth quarter, Italy's economy would stall for the first three months of 2023.

While Denmark and Sweden are now in a recession, the Czech Republic and Hungary have already concluded two-quarters of contraction outside the eurozone.

After surprisingly expanding by 0.1% at the end of 2022, data from Eurostat at the end of January already showed the euro area was on track to escape a recession.

Per the Eurostat, the 20-nation currency bloc's inflation rate decreased more than predicted in January to 8.5%, but a measure of underlying inflation that excludes volatile goods remained at an all-time high of 5.2%.

On February 2, the deposit rate was raised by the European Central Bank by a half-point to 2.5%, the highest level since 2008. The bank also said that it would take a similar action the following month. President Christine Lagarde praised the continent's surprise resiliency while describing threats to the economic and inflation outlook as more balanced.

(Bloomberg.com, Europa.eu)