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In the EU Commission’s best-case scenario – that 70 percent of European adults will be vaccinated by the summer – there is a “light at the end of the tunnel” for Europe’s economy damaged by the pandemic.
In its winter interim economic forecasts, the EU executive expects that growth in the 19 eurozone countries will reach 3.8 percent this year and next after a 6.3 percent drop in 2020.
Growth in the whole EU is predicted to be at 3.7 percent in 2021 and 3.9 percent next year, bouncing back from a 6.3 percent decrease in 2020.
What allows the commission to be more slightly more optimistic than when it published its last forecast the autumn, is the vaccine roll-out and a bit more clarity about Covid-19’s impact on the economy.
“We remain in the painful grip of the pandemic, its social and economic consequences all too evident. Yet there is, at last, light at the end of the tunnel,” economy commissioner Paolo Gentiloni told journalists on Thursday (11 February).
“Compared to the autumn we face fewer unknown risks, and more known risks,” he added.
Gentiloni acknowledged that the goal of vaccinating 70 percent of European adults by summer was “a challenging target”.
There was a strong rebound in the third quarter last year, which was then halted by the second wave of the pandemic.
Economic growth is now expected to resume in the spring and gain momentum in the summer thanks to the vaccination programme, which would allow lockdown measures to ease, according to the commission’s expectations.
However, delays in the vaccination by member states could slow down any recovery.
The commission also warned countries that “a premature withdrawal” of fiscal and monetary measures to support economies would risk recovery.
The commission said that there is also a risk that the crisis could leave deeper social and economic scars, through widespread bankruptcies and job losses.
This could increase long-term unemployment and worsen inequalities, including gender inequality, and hurt the financial markets.
Mid-2022 recovery
The commission expects the bloc’s economy to return to pre-pandemic GDP levels in the middle of 2022, earlier than expected. The commission previously projected that the recovery would not be complete until 2023.
But the recovery will not be even across the bloc, and could also be upset if new variants of Covid-19 emerge.
The commission’s estimates do not take into account the full effect of the €750bn recovery fund, because the programmes it will finance have not yet been translated into budgetary measures everywhere.
The fund is not expected to start distributing money before the summer, as member states still need to ratify legislation that allows the commission to raise money on the markets for the fund.
So far, Croatia, Cyprus, Slovenia, Portugal, France and Bulgaria have ratified it.
Brexit loss
The forecast, however, is the first to take account of the effects of the Brexit trade deal on the EU economy.
For the EU on average, the exit of the UK from the EU on the terms of the trade deal reached last December means an output loss of around 0.5 percent of GDP by the end of 2022, and 2.2 percent for the UK.
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