After a year of extreme economic challenges, from soaring inflation to volatility in the energy supply market, economists and policy makers are hoping that 2023 will prove to be less of a rollercoaster ride, but there are still many challenges to overcome.
Inflation remains high, and the risk of recession that loomed throughout 2022 has not gone away. While some European economic sectors such as the wagering industry are thriving, particularly at the high end of the market, and the top online casinos continue to meet strong demand for online casino gaming found on trusted online casino portals (https://www.casinotopsonline.com/top-10-online-casinos), the picture across the Eurozone economies as a whole is patchy.
There is no doubt that 2023 will test the resourcefulness and resolve of everyone involved in the Eurozone economy. Here are seven predictions for the year ahead:
Inflationary pressures remain
The hike in energy costs that occurred in 2022 as a result of the Russian invasion of Ukraine has helped to increase inflation in European economies to almost 11%. This represents a record high and is more than five times higher than the European Central Bank’s inflation target. Energy inflation in Europe is likely to remain high throughout 2023 given the state of the liquefied natural gas (LNG) market.
Inflation is not solely due to energy costs. Core inflation in Europe is at 5% and with demand for labor at historic levels, wage growth is likely to reach between 5% and 6% in 2023, fueling inflationary pressures throughout the year. Further interest hikes in 2023 are inevitable as without them, European GDP would have to collapse by about 6% to bring inflation back to the 2% target.
Energy challenges persist
Energy is sure to be at the heart of many economic conversations over the next few months. Although the immediate danger of gas rationing in Europe appears to have passed, due partly to a relatively mild December, it will be challenging for companies to refill their gas inventories ahead of the 2023-24 winter, particularly as China competes for access to greater quantities of LNG.
Italian debt concerns
There are also some specific areas of concern relating to individual economies. One of these is the issue of Italian sovereign debt, which is now in excess of 150% GDP. The new government’s first budget has been broadly welcomed, but borrowing is still expected to be greater than expected and the government could be under pressure to continue energy subsidies if prices remain high.
Scandinavian household debt
Another factor to look out for in 2023 is the high level of household debt across the Scandinavian countries. This is likely to make it harder to tackle inflation through regular interest rate hikes and poses the threat of a drop in housing prices in both Sweden and Norway. There is also likely to be pressure on their respective currencies in 2023 as their economies move away from growth based largely on domestic demand.
Tough road for the UK
No longer in the EU, but still a significant economy in the European context, the UK faces a range of economic challenges. The Rishi Sunak administration has steadied the ship, at least compared to the catastrophic failure of the preceding government, but inflation is still in the double digits and labor demand is high, due partly to a significant increase in people leaving the workforce.
These factors, along with its traditional sensitivity to negative growth, will make it hard for the Bank of England to utilize the hiking cycle in tackling inflation, leading to challenges for the pound.
Financial conditions upside
There are some brighter indicators. Financial conditions are not especially tight and fiscal stimulus should continue in Europe throughout 2023 at a higher level than in the rest of the developed world. In 2022, European governments introduced household and business stimulus worth almost 5% of the GDP and that process will continue and ramp up in 2023.
Strong demand
The second reason for optimism is the relatively high demand that exists in pockets throughout Europe. Some reports suggest that order books are at record highs and the credit channel is working well, with private sector lending worth around 0.5% of the GDP every month, so we can expect growth in some areas, though the picture will continue to be patchy.
Summary
The challenges of 2022 have not gone away and the pressures of inflation, high energy costs and high labor demand will continue to occupy the attention of economists and central banks across the European area in 2023. It is not likely that inflation will be brought under control completely by the end of the year. Last year’s volatility is expected to continue throughout the next few months.
