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Add to Preferred SourcesThe coronavirus pandemic represents a major shock for the global and EU economies, with very severe socio-economic consequences. Despite the swift and comprehensive policy response at both EU and national level, the EU economy will experience a recession of historic proportions this year.
The Spring 2020 Economic Forecast 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.
A large hit to growth followed by an incomplete recovery
The coronavirus pandemic has severely affected consumer spending, industrial output, investment, trade, capital flows, and supply chains. 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
Unemployment is set to increase, though policy measures should limit the rise
While short-time work schemes, wage subsidies and support for businesses should help to limit job losses, the coronavirus pandemic will have a severe impact on the labour market.
The unemployment rate in the euro area is forecast to rise from 7.5% in 2019 to 9½% in 2020 before declining again to 8½% in 2021. In the EU, the unemployment rate is forecast to rise from 6.7% in 2019 to 9% in 2020 and then fall to around 8% in 2021.
A steep drop in inflation
Consumer prices are expected to fall significantly this year due to the drop in demand and the steep fall in oil prices, which together should more than offset isolated price increases caused by pandemic-related supply disruptions.
The Spring Forecast is clouded by a higher than usual degree of uncertainty. It is based on a set of assumptions about the evolution of the coronavirus pandemic and associated containment measures. The forecast baseline assumes that lockdowns will be gradually lifted from May onwards.
The risks surrounding this forecast are also exceptionally large and concentrated on the downside.
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.
Read and download the Spring 2020 Economic Forecast.
Original source: European Commission
Published on 06 May 2020