The coronavirus pandemic represents a major shock for the global and EU economies, with very severe socio-economic consequences, the Commission said in its Spring 2020 Economic Forecast. This projects that the euro area economy will contract by a record 7¾% in 2020 and grow by 6¼% in 2021. The EU economy is forecast to contract by 7½% in 2020 and grow by around 6% in 2021. Growth projections for the EU and euro area have been revised down by around nine percentage points compared to the Autumn 2019 Economic Forecast.
The shock to the EU economy is symmetric in that the pandemic has hit all Member States, but both the drop in output in 2020 (from -4¼% in Poland to -9¾% in Greece) and the strength of the rebound in 2021 are set to differ markedly. Each Member State’s economic recovery will depend not only on the evolution of the pandemic in that country, but also on the structure of their economies and their capacity to respond with stabilising policies. Given the interdependence of EU economies, the dynamics of the recovery in each Member State will also affect the strength of the recovery of other Member States.
The coronavirus pandemic has severely affected consumer spending, industrial output, investment, trade, capital flows and supply chains, says the forecast. The expected progressive easing of containment measures should set the stage for a recovery. However, the EU economy is not expected to have fully made up for this year’s losses by the end of 2021. Investment will remain subdued and the labour market will not have completely recovered. The continued effectiveness of EU and national policy measures to respond to the crisis will be crucial to limit the economic damage and facilitate a swift, robust recovery to set the economies on the path of sustainable and inclusive growth.
The Spring Forecast is clouded by a higher than usual degree of uncertainty. The risks surrounding this forecast are also exceptionally large and concentrated on the downside.
A more severe and longer lasting pandemic than currently envisaged could cause a far larger fall in GDP than assumed in the baseline scenario of this forecast. In the absence of a strong and timely common recovery strategy at EU level, there is a risk that the crisis could lead to severe distortions within the Single Market and to entrenched economic, financial and social divergences between euro area Member States. There is also a risk that the pandemic could trigger more drastic and permanent changes in attitudes towards global value chains and international cooperation, which would weigh on the highly open and interconnected European economy. The pandemic could also leave permanent scars through bankruptcies and long-lasting damage to the labour market. The threat of tariffs following the end of the transition period between the EU and United Kingdom could also dampen growth, albeit to a lesser extent in the EU than in the UK.
Source: EUBusiness
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