The European Commission updates its economic forecasts

The European Commission has sharply raised its economic forecast for the next two years as an accelerated vaccination campaign is helping the euro area recover from the historic blow from the pandemic.

The eurozone will grow 4.3% this year and 4.4% in 2022, Brussels said on Wednesday, compared to previous forecasts of 3.8% growth for both years. As a result, all Member States are now expected to return to their pre-crisis production levels by the end of next year, after a historic drop of 6.6% in 2020.

The stronger outlook has been driven by rising vaccination rates and the prospect of easing lockdowns in the region, as well as improving export demand thanks to a global rebound. Brussels for the first time fully taken into account the impact of the EU’s new generation 800 billion euros economic stimulus package, which is expected to start paying off in the second half of the year.

“The shadow of Covid-19 is starting to dissipate from the European economy,” said Paolo Gentiloni, the European Commissioner for the Economy. “After a weak start to the year, we expect strong growth in 2021 and 2022. Unprecedented budget support has been – and remains – essential in helping European workers and businesses weather the storm.

Europe slipped into a double-dip recession earlier this year amid new lockdowns and a shaky start to the vaccination effort. However, evidence has emerged more recently that the economy has “shifted into high gear,” according to the commission, which cited improved surveys of business and consumer sentiment.

A further easing of containment measures combined with advance payments from the stimulus fund should lead to an acceleration of economies in the third quarter – including those with large tourism sectors, which should benefit from the return to “near-normal” social activities in the country. during the summer ”, according to the commission.

Stronger global growth, driven in part by US stimulus packages and improved growth in China, will also help boost the EU’s export sector and contribute to the recovery. The EU economy as a whole will grow by 4.2% in 2021 and 4.4% in 2022, according to forecasts, also an improvement over the outlook for February. The bloc’s unemployment rate will hit 7.6% this year before dropping back to 7% in 2021.

Spain, which was the hardest hit EU economy last year, losing more than a tenth of its output, will grow 5.9% in 2021 and 6.8% in 2022, according to the new perspectives. Italy is expected to grow 4.2 percent this year and 4.4 percent next.

Germany, which suffered a much smaller contraction in 2020, could grow 3.4% in 2021 and 4.1% in 2022. France is expected to grow 5.7% this year and 4.2% the next time.

The outlook for next year will be supported by the highest levels of public investment as a percentage of gross domestic product for more than a decade. This will in part be driven by the Next Generation EU package, which is expected to start paying off this summer once Member States approve their stimulus plans by the Commission.

In total, the six-year program is expected to disburse around 140 billion euros in grants over the two years covered by the commission’s forecasts. This is expected to result in a 1.2 percent increase in GDP, according to the outlook.

However, the crisis will continue to exert massive pressure on public finances, with the euro zone’s overall deficit expected to rise to 8% of GDP this year. This percentage is expected to be halved next year to 4%. But the legacy of massive government spending programs will continue to weigh heavily. The euro area’s public debt-to-aggregate GDP ratio will remain above 100% this year and next, the committee said.

EU Member States face a tense debate later this year, on how to quickly cut their stimulus packages and whether to reform the Union’s fiscal rules, which are expected to remain on hold until 2023.

Among the risks to the outlook, the commission said, was the possibility that governments may decide to start cutting their economic support programs too soon, which would jeopardize the recovery. The continued effectiveness of vaccines and the evolution of the pandemic will also play a key role in determining whether updating the EU forecast is warranted.

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