FRANKFURT, Germany — The European Union has lowered its forecast for economic growth this year and next, saying inflation is taking a heavy toll on people's willingness to spend in shops — while higher interest rates are sharply restricting the credit needed for investment and purchases.
The revised forecast Monday from the European Commission, the EU’s executive arm, comes as fears of recession grow and as thethis week on whether to keep raising rates that are aimed at getting the inflation under control.1.1% projected in the spring forecast"Weakness in domestic demand, in particular consumption, shows that high and still increasing consumer prices for most goods and services are taking a heavier toll than expected," the commission said in a statement.
Surveys of purchasing managers show that economic activity is contracting in all major eurozone economies, according to Alexander Valentin, senior economist at Oxford Economics, data that “add to mounting recession risks.” Still, the current state of the economy doesn't resemble a typical recession, because unemployment is at record lows and wages are gradually catching up to the purchasing power lost to inflation as workers demand and get more.