Eurozone is set to undergo an even deeper recession due to the coronavirus pandemic despite measures taken at both EU and national levels, the European Commission said in its Summer Forecast released Tuesday.
The currency bloc is forecast to contract 8.7 percent in 2020 instead of 7.7 percent projected in the Spring Forecast. Nonetheless, the region is forecast to grow 6.1 percent in 2021, which was slightly less robust than the 6.3 percent expansion projected previously.
As the scale and duration of the pandemic remains unknown, the risks to the forecast are exceptionally high and mainly to the downside. The forecast assumes that lockdown measures will continue to ease and there will not be a ‘second wave’ of infections.
We continue to navigate in stormy waters and face many risks, including another major wave of infections,” Valdis Dombrovskis, Executive Vice-President for an Economy that works for People, said.
“Looking forward to this year and next, we can expect a rebound but we will need to be vigilant about the differing pace of the recovery,” Dombrovskis added.
The inflation outlook has not changed substantially since spring. Inflation is seen at 0.3 percent in 2020 compared to the previous outlook of 0.2 percent. The forecast for 2021 was left unrevised at 1.1 percent.
Among the largest euro area countries, above-average GDP contractions were reported in France, Italy and Spain, while Germany and the Netherlands saw smaller hits.
Germany’s real GDP was forecast to decline in 2020, largely in line with the spring forecast, by 6.3 percent. Starting the recovery in the second half of this year, the economy will grow 5.3 percent in 2021, EU said.
Spain’s annual GDP growth in 2020 was forecast at 10.9 percent, about 1.5 percentage points lower than projected in spring. GDP growth for 2021 was broadly unchanged from the previous forecast, at 7.1 percent.
France’s GDP was projected to shrink 10.6 percent this year. The economic recovery is set to remain on track in 2021, with GDP expanding by 7.6 percent.
Italy real GDP forecast to fall by 11.2 percent this year but to grow 6.1 percent in 2021. However, real GDP is not expected to return to its 2019 level by the end of 2021.
UK GDP was forecast to fall by about 9.75 percent in 2020 and to grow by 6 percent in 2021. Projections for 2021 were based on a purely technical assumption of status quo in terms of trading relations between the EU and the UK.
The EU region is forecast to shrink 8.3 percent this year but to grow 5.8 percent next year. The rate for 2020 was revised from -7.4 percent and that for 2021 from 6.1 percent.