Investment moderated and companies exported less, reflecting a slowdown in external demand and some losses in competitiveness.
Surveys point to a gradual recovery over the course of 2024.
As inflation falls and wages continue to grow, real incomes will rebound, supporting growth.
The dampening impact of past interest rate increases will gradually fade and demand for euro area exports should pick up.
The unemployment rate is at its lowest since the start of the euro, employment grew by 0.3% in the final quarter of 2023, again outpacing economic activity.
According to the March 2024 projections, economic growth is projected to gradually pick up during 2024 as real disposable income rises, amid declining inflation and robust wage growth, and as the terms of trade improve.
Overall, annual average real GDP growth is expected to be 0.6% in 2024, and to strengthen to 1.5% in 2025 and 1.6% in 2026.
Compared with the December 2023 Eurosystem staff macroeconomic projections for the euro area, the outlook for GDP growth has been revised down for 2024, owing to carry-over effects from past negative data surprises and weaker incoming forward-looking information, it is unrevised for 2025 and has been revised slightly up for 2026.
Governments should continue to roll back energy-related support measures to allow the disinflation process to proceed sustainably.
Fiscal and structural policies should be strengthened to make the euro area economy more productive and competitive, expand supply capacity and gradually bring down high public debt ratios.
Inflation is expected to continue its downward trend in the coming months.
Measures of longer-term inflation expectations remain broadly stable, with most standing around 2%.
Overall, annual average headline inflation is expected to decrease from 5.4% in 2023 to 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026. Given the weak outlook for energy inflation, headline inflation is expected to remain below inflation excluding energy and food throughout the projection horizon.
Compared with the December 2023 projections, headline inflation has been revised down for 2024 and 2025, mainly owing to the direct and indirect effects from lower assumptions for energy commodity prices and lower labor cost pressures, and is unrevised for 2026.
The risks to economic growth remain tilted to the downside.
Growth could be lower if the effects of monetary policy turn out stronger than expected.
A weaker world economy or a further slowdown in global trade would also weigh on euro area growth.