The European Commission renews its economic forecasts
The European Commission has significantly boosted its economic outlook for the next two years as a swift vaccination campaign helps the eurozone recover from the historic blow of the pandemic.
The euro area will grow by 4.3% this year and by 4.4 per cent in 2022, Brussels said on Wednesday, compared to previous two-year growth forecasts of 3.8%. As a result, all Member States are expected to recover to pre-crisis production levels by the end of next year, after a historic 6.6 per cent decline in 2020.
A strong view was driven by rising vaccine rates and opportunities to reduce blockages across the region, as well as improving export demand caused by global rebounds. Brussels, for the first time, fully considered the impact of the next-generation EU of € 800 billion economic package for re-launch, is expected to begin paying in the second half of the year.
“The shadow of Covid-19 is beginning to emerge from the European economy,” said EU Economic Commissioner Paolo Gentiloni. “After a weak start to the year, we anticipate strong growth in 2021 and 2022. Unprecedented fiscal support has been – and continues to be – essential to help European workers and businesses weather the storm.”
Europe slipped into a doubling recession earlier this year amid a rough start to renewed blockades and vaccination efforts. However, they are recently proving that the economy has “increased speed,” according to the commission, which noted that business and consumer sentiment surveys have improved.
Reducing containment measures along with early repayment of the recovery fund would boost the economy in the third quarter – including those with large tourism sectors, which should benefit from a return to “almost normal social activities over the summer”. according to the committee.
Stronger global growth, partly boosted by US stimulus packages and growth in China, will help lift and revitalize the EU’s export sector. The broader EU economy will grow by 4.2 per cent in 2021 and 4.4 per cent in 2022, according to the February forecast. The unemployment rate for the block will reach 7.6% this year before falling to 7% in 2021.
Last year, Spain was the worst hit economy in the EU, losing more than a tenth of its production, growing by 5.9 percent in 2021 and 6.8 percent in 2022, according to new forecasts. Italy will increase by 4.2% this year and 4.4% next.
Germany, which had a much smaller contraction in 2020, could grow by 3.4 percent in 2021 and 4.1 percent in 2022. France will increase by 5.7% this year and 4.2% next year.
The forecast for next year will be supported by higher levels of public investment as a share of gross domestic product for more than a decade. This will, in part, be driven by the next-generation EU package, which is to start paying in the summer after Member States sign the Commission’s recovery plans.
In total, the six-year program would have to pay about 140 billion euros in grants over the two years covered by the commission’s forecasts. This is expected to rise by 1.2% of GDP.
The crisis will still put great strain on public finances, however, the general deficit in the eurozone will rise to 8% of GDP this year. It is forecast to fall to 4% next year, but the legacy of major government spending programs will still be large. The ratio of public debt in the euro area to GDP will remain above 100 per cent this year and next, the commission said.
EU Member States a tense discussion this year, later, to find out how to delay the revitalization programs and reform the bloc’s fiscal rules, which will be suspended until 2023.
Among the risks to the outlook, the commission said, was the possibility that governments would decide to start rebuilding their economic aid packages too soon, damaging the recovery. The continued effectiveness of vaccines and the evolution of the pandemic will also be of great importance in determining whether the renewed EU forecast is justified.