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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 eurozone will grow by 4.3% this year and 4.4% in 2022, Brussels said on Wednesday, compared to its previous two-year growth forecast of 3.8 per cent. As a result, all member states are expected to recover to pre-crisis production levels by the end of next year, following a historic 6.6 percent decline in 2020.
A strong outlook prompted rising vaccine rates and opportunities to wait for blockages across the region, as well as improving export demand driven by global rebounds. Brussels, for the first time, fully considered the impact of the next-generation EU of 800 billion euros economic package for re-launch, is expected to begin paying in the second half of the year.
“The shadow of Covid-19 has begun to emerge from the European economy,” EU Economic Commissioner Paolo Gentiloni said. “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 has had a slippery slope at the end of the year at the beginning of this year between the renewed blockades and the rough start of the vaccination effort. 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 the retention measures along with the initial payments of the recovery fund would accelerate the economy in the third quarter – including those with large tourism sectors, which should serve to return to “almost normal social activities during the summer”. according to the committee.
Stronger global growth, partly boosted by US stimulus packages and growth in China, will help lift and stimulate 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 EU economy, 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 grow 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.
Next year’s forecast is that the highest levels of public investment will help as a share of gross domestic product for more than a decade. This will be driven in part by the next-generation EU package, which is to start paying in the summer after Member States have signed plans to reinstate the Commission.
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 continue to put serious strain on public finances, however, as the general deficit in the eurozone rises to 8% of GDP this year. It is forecast to fall to 4% next year, but the legacy of the government’s extensive 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 by the end of this year, they want to know how to delay 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, weakening the recovery. The ongoing effectiveness of vaccines and the evolution of the pandemic will also be crucial in determining whether the renewed EU forecast is justified.
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