Despite the Russian aggression against Ukraine, the economy of the European Union entered 2023 on a better footing than was anticipated at the end of last year, the International Monetary Fund (IMF) announced in its latest World Economic Outlook report.
The IMF’s winter interim forecast raises growth prospects for this year to 0.8 percent in the EU and 0.9 percent in the eurozone. Both areas are now poised to narrowly avoid the technical recession that was expected at the turn of the year. The forecast also slightly lowers inflation projections for 2023 and 2024, the report adds.
– After a strong expansion in the first half of 2022, growth momentum weakened in the third quarter, although somewhat less than expected. Despite exceptional adverse shocks, the EU economy avoided the contraction in the fourth quarter predicted in the autumn forecast. The annual growth rate for 2022 is now estimated at 3.5 percent in both the EU and the eurozone – they add.
Favorable developments have improved growth prospects for this year. Continuous diversification of supply sources and a sharp decline in consumption have left gas storage levels above the seasonal average of previous years, and wholesale gas prices have fallen significantly below pre-war levels. Additionally, the labor market in the EU has continued to perform well, with the unemployment rate remaining at its lowest level ever.
The unemployment rate in six G7 countries is hovering near the lowest this century, and the unemployment rate of 3.4 percent in the U.S. has not been this low since 1969. However, while some economies manage the labor market, others face more challenging conditions. In many countries, the pandemic has exacerbated entrenched trends but has also changed the very conditions of the labor market. The IMF predicts that South Africa will have the highest unemployment rate in the world this year, reaching as high as 35.6 percent. Unemployment in this country has generally hovered around 20 percent.
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In Europe, Bosnia and Herzegovina is expected to have the highest unemployment rate if the IMF’s predictions are to be believed, with the unemployment rate in BiH expected to reach 17 percent. Following BiH are North Macedonia (15.0%) and Spain (12.7%). These unemployment rates are more than double the projections for advanced economies in Europe.
The unemployment rate in Croatia in January 2023 was 7.2 percent, the highest percentage in the last ten months, and higher compared to 8 percent in December 2022. The number of unemployed increased by 3.9 percent month-on-month to 122,369 people, while the number of employed decreased by 1 percent to 1.59 million, according to DZS data.
U.S. Figures
In 2022, 4.8 million jobs were created (added) in the U.S., which is double the average recorded between 2015-2019. Some analysts suggest that despite poorer economic prospects, companies are hesitant to lay off workers while at the same time, the labor market absorbs workers who have lost their jobs.
Today, strong labor markets present a key challenge for central bank leaders globally as a strong labor market contributes to high inflation. However, despite recent rate increases, the effect has yet to trigger large waves of unemployment. Typically, such monetary policy moves take about a year to reach peak effect, the IMF writes in the report, adding that the rise in unemployment could follow after higher interest rates.
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