Europe’s economy will experience a deep recession this year due to the coronavirus pandemic, according to the European Union’s summer economic forecast, published Tuesday by the EU Commission. Because lifting of lockdown measures is proceeding more gradually than assumed in the Commission’s Spring Forecast, the impact on economic activity in 2020 will be more significant than anticipated.
The Summer 2020 Economic Forecast projects that the euro area economy will contract by 8.7% in 2020 and grow by 6.1% in 2021. The EU economy is forecast to contract by 8.3% in 2020 and grow by 5.8% in 2021. The contraction in 2020 is, therefore, projected to be significantly greater than the 7.7% projected for the euro area and 7.4% for the EU as a whole in the Spring Forecast. Growth in 2021 will also be slightly less robust than projected in the spring.
“Coronavirus has now claimed the lives of more than half a million people worldwide, a number still rising by the day – in some parts of the world at an alarming rate. And this forecast shows the devastating economic effects of that pandemic.” said the EU’s Commissioner for the Economy Paolo Gentiloni: “The policy response across Europe has helped to cushion the blow for our citizens, yet this remains a story of increasing divergence, inequality and insecurity.” Mr Gentiloni urged swift agreement on the Commission’s proposed recovery plan, “to inject both new confidence and new financing into our economies at this critical time.”
Economic activity in the first quarter was already considerable, even though most EU Member States only began introducing lockdown measures in mid-March. With a far longer period of disruption and lockdown taking place in the second quarter of 2020, economic output is expected to have contracted significantly more than in the first quarter. However, early data for May and June suggest that the worst may have passed. The recovery is expected to gain traction in the second half of the year, albeit remaining incomplete and uneven across Member States.
The shock to the EU economy is symmetric in that the pandemic has hit all Member States. However, both the drop in output in 2020 and the strength of the rebound in 2021 are set to differ markedly. The differences in the scale of the impact of the pandemic and the strength of recoveries across Member States are now forecast to be still more pronounced than expected in the Spring Forecast. On inflation, the overall outlook for inflation has changed, although there have been significant changes to the underlying forces driving prices.
While oil and food prices have risen more than expected, their effect is expected to be balanced by the weaker economic outlook and the effect of VAT reductions and other measures taken in some Member States. Inflation in the euro area, as measured by the Harmonised Index of Consumer Prices (HICP), is now forecast at 0.3% in 2020 and 1.1% in 2021. For the EU, inflation is forecast at 0.6% in 2020 and 1.3% in 2021.
Source: EU Business
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