EU countries saw spike in inflation, high interest rates, economic slowdown in 2023

Fri, 29 Dec 2023 6:22 GMT
EU dealt with economic stagnation, which led the outgoing year to lower growth expectations, while high-level meetings for Türkiye-EU economic relations held in Brussels.
EU countries saw spike in inflation, high interest rates, economic slowdown in 2023

The EU countries faced serious challenges in 2023, with high inflation, rising interest rates, and an economic slowdown, as well as high gas and electricity prices caused by the Russia-Ukraine war-induced energy crisis. 

Inflation rates in the EU and eurozone were well above the European Central Bank's (ECB) medium-term target of 2% for most of 2023, with inflation reaching 10% in the EU and 8.6% in the eurozone in Jan.

Although the inflation rate in the eurozone declined gradually throughout the year, the measures implemented resulted in economic stagnation and a sharp drop in demand in Europe.

Interest rates reached their highest levels in the history of the euro, particularly after the ECB’s successive and rapid rate hikes.

With these developments, the EU Commission lowered its forecast for economic growth in the EU and eurozone this year to 0.8% due to the contraction in domestic demand.

The downward revision was caused by the severe impact of the economic slowdown and the continued high consumer prices for most goods and services, particularly the decline in consumption.

Energy prices remained high    

The EU countries implemented numerous measures and support programs to combat rising natural gas and electricity prices due to the Russia-Ukraine war and the energy crisis. Therefore, the electricity and natural gas prices for residential consumption peaked in the first half of 2023.

Given the events, electricity prices rose from €25.3 (about $28) per 100 kilowatt-hours to €28.9 (about $32) year-on-year in 22 EU countries during the first half of 2023.

The highest increase in electricity prices in Europe was in the Netherlands, with 953%, followed by Lithuania (88%), Romania (77%), Latvia (74%), Slovenia (38%), Sweden, and Belgium both (27%), Germany (26%), and Italy (21%).

The average price per 100 kilowatt-hours of natural gas used in residential buildings in EU countries was €11.9 in the first half of 2023, a €3.3 rise from €8.6 year-on-year, marking a historic high in natural gas prices.

Latvia saw the greatest increase in gas prices, at 139%, followed by Romania (134%), Austria (103%), the Netherlands (99%), and Ireland (73%).   

Unrest in European banks    

The bank failures in the US in March and the possible impact of the Credit Suisse crisis on the EU also caused concerns throughout Europe.

The developments, which followed the largest Credit Suisse shareholder's announcement that the bank would not raise capital pushed the bank into failure, causing concern across the continent, while the share values of many major European banks fell rapidly.

Only after UBS, Switzerland's largest bank, announced that it would buy the 167-year-old Credit Suisse for 3 billion Swiss francs (about $3.5 billion) with government backing did European banking calm down.    

Ban on gasoline, diesel engines cars    

In March, EU countries approved a proposal to ban the sale of new cars with gasoline and diesel engines beginning in 2035.

The decision accelerated the transition to electric vehicles in the transportation sector.     

Strict rules for digital platforms   

The EU introduced strict new rules for the world’s largest digital platforms in March. Major digital platforms, search engines, and shopping websites with over 45 million users in European countries were more strictly regulated.

Companies like Apple, Google, Facebook, and X/Twitter began to be subject to additional obligations on their digital platforms, such as limiting disinformation, removing illegal content at once, and protecting minors online, as well as undergoing external audits.

Platforms that do not comply with the new law face fines of up to 6% of their global revenue.    

New sanctions against Russia 

The EU imposed three new sanctions packages against Russia in 2023, including bans on industrial and technological exports, as well as exports of various spare parts and products that can be used for both military and civilian purposes.

Diamond imports from Russia have been banned, while several new measures have been introduced to tighten the oil ceiling price to prevent violations or circumvention of sanctions and to reduce the country’s oil revenue.   

Positive dialogue in Türkiye-EU economic ties    

Several Turkish ministers met with EU officials in Brussels to discuss Türkiye-EU economic relations.

Nureddin Nebati, the previous Turkish minister of treasury and finance, delivered a speech as a special guest to the European Parliament's Committee on Foreign Affairs in January and met separately with Paolo Gentiloni, the EU commissioner for economy, and Oliver Varhelyi, the EU commissioner for enlargement.

The Turkish economy, the update of the Customs Union, the impact of green and digital transformation on the economy, and the development of financial cooperation with the EU were discussed.

In the wake of the Feb. 6 earthquakes in southern Türkiye and the country’s general election, talks with the EU gained traction.

Turkish Trade Minister Omer Bolat held separate meetings in Brussels with European Commission Executive Vice President Valdis Dombrovskis and commissioners Varhelyi and Gentiloni in October to strengthen trade and economic relations.

Bolat also participated in events hosted by Brussels-based think tanks, exchanging views on the positive agenda in the trade between Türkiye and the EU, and potential improvements to the Customs Union.

Turkish Minister of Transport and Infrastructure Abdulkadir Uraloglu paid an official visit to Brussels in October, where he met with Transport Commissioner Adina-Ioana Valean and Varhelyi and spoke at the EU Commission's high-level Global Gateway Forum: Transport Corridors panel.

Turkish Minister of Industry and Technology Mehmet Fatih Kacir held separate talks in Brussels in November with Commissioner for Innovation, Research, Culture, Education and Youth Iliana Ivanova, Internal Market Commissioner Thierry Breton, and Varhelyi on several important topics such as the Customs Union update, cooperation in research and development, and visa liberalization.

Turkish Minister of Agriculture and Forestry Ibrahim Yumakli visited Brussels in November to participate in the Türkiye-EU High-Level Dialogue on agriculture, which was co-chaired by Agriculture Commissioner Janusz Wojciechowski.

The meeting focused on agricultural and rural development strategies, food safety, improving bilateral trade in agricultural products, geographical indications, and the Instrument for Pre-Accession Assistance Rural Development (IPARD) Program.

Given these developments, the Türkiye-EU High-Level Dialogue Meetings, which had been suspended for many years, were resumed with a positive agenda priority.   


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