Following a strong recovery after the onset of the COVID-19 pandemic, growth in the EU is expected to sharply decelerate in 2023 as high inflation and increasingly tight monetary policy dampen economic activity. Although the EU economy was more resilient than expected in 2022 — owing to additional fiscal support and earlier strength in domestic demand — this momentum is expected to fade in 2023. Growth is set to slow further in 2023, as the drag from tighter monetary policy to combat inflation accumulates, external demand remains muted, and uncertainty remains high, especially after the recent banking turmoil. The outlook for the EU economy remains challenging as member states are confronted by strong headwinds from persistent inflation, weaker household disposable income, and tighter financing conditions. Despite ongoing fiscal support in many countries, the adverse impact of high inflation on real disposable income is expected to dampen private consumption.