The European Union’s executive arm has forecast that the bloc’s economy will contract more than previously expected because of the coronavirus pandemic.
The 27-nation EU economy will contract by 8.3% this year, before growing 5.8% in 2021, according to the latest predictions released by the European Commission.
EU economy commissioner Paolo Gentiloni said: “The road to recovery is still paved with uncertainty. This is mostly linked to the epidemiological uncertainty.”
#ECForecast: 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.— EU Economy & Finance (@ecfin) July 7, 2020
More👉 https://t.co/7t3GND5ETH pic.twitter.com/mmMKreB9cz
In the previous forecasts released in May, when most of the continent was still under lockdown, GDP was forecast to contract by about 7.5% this year and to bounce back by 6% next year.
The European Commission said the impact on economic activity in 2020 will be worse than expected because “the lifting of lockdown measures is proceeding at a more gradual pace than assumed in our spring forecast.”
That was illustrated in separate data from Germany that showed industrial production rebounded in May but was far from making up for the collapse of the preceding months.
Mr Gentiloni said that the EU’s biggest challenge in the months to come will be to find the right balance between the necessity to reopen EU economies and the protection of citizens’ health.
This remains a story of increasing inequality, poverty and insecurity. We should never forget this dimension. This is why it is so important that an agreement is reached swiftly on the recovery plan and the new Multiannual Financial Framework. #ECForecast pic.twitter.com/dca0OhtNwj— EU Economy & Finance (@ecfin) July 7, 2020
More than 178,000 deaths related to Covid-19 have been recorded across the continent, according to the latest numbers from the European Centre for Disease Prevention and Control.
“We have to live with the danger of local outbreaks” that could lead to plans to re-enter local lockdowns slowing down the economic recovery, Mr Gentiloni said.
The group of 19 EU nations that use the euro as their currency will see a record economic decline of 8.7% this year, and grow by 6.1% in 2021. In May it had forecast a 7.8% decline this year, and growth of 6.3% in 2021.
Although the EU as a whole has been hit hard by the downturn, Mr Gentiloni said the drop and the rebound will differ widely from one member country to another. For instance, while Poland’s economy is set to shrink by 4.6% this year, France, Italy and Spain are expected to experience double-digit drops.
Summer 2020 #ECForecast: A deeper recession with wider divergences.— EU Economy & Finance (@ecfin) July 7, 2020
The euro area economy is forecast to contract by 8.7% in 2020 & grow by 6.1% in 2021. The EU economy is forecast to contract by 8.3% in 2020 & grow by 5.8% in 2021.
Press release: https://t.co/xa0TjpxAiW pic.twitter.com/Kit2oygjEg
To ensure a quick bounce back, Mr Gentiloni urged member states to adopt as soon as possible a recovery fund aimed at pulling the EU out of the recession. EU governments leaders and heads of state will meet next week in Brussels to try to reach a compromise on the 750 billion-euro package proposed by the commission.
Backed by Germany and France, the money in the fund would be incorporated in the 2021-2027 EU budget. Two-thirds of the fund would take the form of grants to be made available to EU countries, while the rest would be made up of conditions-based loans that governments can apply for.
Mr Gentiloni said the expected effects of the recovery plan have not been taken into account in the growth forecast, and that its quick implementation could help brighten the outlook.
He said: “It’s important that an agreement is reached swiftly. To inject new confidence and new financing into our economy in critical times.”