The EU's economy has weathered dire predictions, but now faces a new challenge in trade with China, according to EU Commissioner Pierre-Luc Gentiloni.

• Paolo Gentiloni, Europe's economy minister, says that after surviving "terrible prophecies," Europe must now confront the challenges of the war in Ukraine and navigate trade ties with China.
• The EU's economy experienced "moderate growth, despite dire predictions of recessions, power outages, and European divisions due to Russia's invasion," as stated by Gentiloni in an interview with CNBC's Steve Sedgwick at the Ambrosetti Forum.
• The European Union must "support Ukraine, maintain open international trade, and not align with China's stance, of course, we will abandon our creativity in trade relations with China," he stated.

Despite recent threats to its economy, the European Union has managed to avoid the dire predictions, but must still deal with ongoing conflicts in Ukraine and an uncertain trade relationship with China, according to outgoing European Commissioner for Economy Paolo Gentiloni.

According to Gentiloni, the bloc's economy experienced "moderate growth, despite the dire predictions of recessions, power outages, and divisions in Europe due to Russia's invasion," as stated in an interview with CNBC's Steve Sedgwick at the Ambrosetti Forum in Cernobbio, Italy.

Since December 2019, Gentiloni has been serving as the European Commissioner for Economy under EC President Ursula von der Leyen, responsible for the economic strategy and legislation of the 20-nation euro zone, including tariffs, while the European Central Bank oversees the region's monetary policy and interest rate decisions.

Gentiloni will not be serving as commissioner for a second term after Von der Leyen's tumultuous re-election as president, but he has already provided an economic outlook for his successor.

"The economy is growing, albeit slowly, and the risks of differences among the European Union have decreased since the pandemic. However, the challenges remain in terms of competitiveness, capital markets union, and defense. If these challenges are not addressed, the new world situation will be difficult for Europeans."

Despite the Covid-19 pandemic, Europe is currently facing a cost-of-living crisis and high inflation due to Russia's invasion of Ukraine and energy supply issues resulting from sanctions against Moscow. Despite this, the euro zone's economy has grown in the first half of the year, with better-than-expected GDP growth of 0.3% in the three months to the end of June, compared to the previous quarter.

The European Commission predicted that the EU's GDP will increase by 1% in 2024 and by 0.8% in the euro area, with respective growth rates of 1.6% and 1.4% in the two regions in 2024. The Commission attributed the growth to factors such as accelerated private consumption, declining inflation, and a strong labor market. However, the Commission also noted broader geopolitical risks, including ongoing conflicts in Ukraine and the Middle East.

In response to a decline in inflation, the ECB made its first move to loosen monetary policy since 2019 by reducing its key rate from 4% to 3.75% in June. By Friday, markets had already factored in another ECB rate cut at its upcoming meeting on September 12.

The Chinese relationship

In the near future, the EU will face two challenges: close-call elections in the U.S., its key trade partner, in November, and tensions in its trade relationship with China. The EU has been targeted by Beijing after imposing higher tariffs on Chinese electric vehicle imports in June, which were found to receive unfair subsidies and pose a threat to EV producers in Europe.

The new Commission's top priority should be addressing trade diplomacy with China and the war in Ukraine, according to Gentiloni, who believes these challenges are more pressing than the possibility of a second U.S. administration under former President Donald Trump.

The European Union must "support Ukraine and keep the doors of international trade open" while "abandoning our ingenuity in the trade relationship with China." However, this does not mean that we can accept the idea that international trade and international trade rules are "over," as Gentiloni noted.

He predicted that a Trump victory in November would not have a significant impact on economic relations between the U.S. and Brussels.

Winds of change

After leaving the Commission, Gentiloni has not yet declared his next move, coinciding with a surge in far-right support in Europe and its legislative body.

"You should never organize your next role while you are currently in one. However, I will certainly contribute to European affairs and possibly also to Italian politics and Italian affairs," he stated on Saturday.

Italian Prime Minister Giorgia Meloni, a right-wing politician, is unlikely to support the candidacy of a leftist politician for the new EU executive, as she has nominated Minister for European Affairs Raffaele Fitto from her own party, Brothers of Italy, to join the executive.

The recent European election saw far-right groups make significant gains, prompting Hungarian Prime Minister Viktor Orbán, who is currently the EU Council president, to question the suitability of a van der Leyen Commission in light of the political climate.

"The Hungarian leader stated on Friday that the previous Commission was unsuccessful in terms of competitiveness, European economy, migration, and stopping the war. As a result, a decision was made to create a new Commission with the same structure."

He stated: "I strongly believe that individuals have the ability to improve and achieve better outcomes than they have in the past. However, it is challenging to maintain this perspective. Despite our efforts to support the Commission, as a logical person, I recognize that we failed to address the voters' desire for change, and the same establishment remains in power in Brussels, which is not positive."

— CNBC's Katrina Bishop contributed to this report.