Europe’s economic recovery from the impact of COVID-19 is gaining momentum, the European Commission concluded in an economic forecast presented on Wednesday (12 May), with the rebound credited to the recovery fund, vaccines, global trade and the lifting of lockdowns.
“For the first time we see optimism prevailing over uncertainty,” Economy Commissioner Paolo Gentiloni told reporters via video link and welcomed the departure from a year of “very negative” Commission forecasts.
The Commission significantly revised its growth forecast for the eurozone, up to 4.3% in 2021 and 4.4% in 2022, and the EU, 4.2% this year and 4.4% the next. The recovery in Europe is being boosted by a strong rebound in the US and China. According to the Commission’s estimates, the stimulus packages approved by the Biden Administration could add around 0.5% to the European output by 2022.
Although the recovery is “no longer a mirage”, Commissioner Gentiloni said that its quality, strength and duration will depend on the evolution of the pandemic. “Our economic fate is primarily in our own hands. And that is why we need to roll up our sleeves,” he added.
The EU executive is also factoring in, for the first time, the impact of around 40% of the Recovery and Resilience Facility, the main pillar of the EU recovery fund. RRF grants of €62 billion in 2021 and €77 billion the year after are projected to be responsible for around 1.2% of EU growth by 2022.
Europe fell into recession again in the first quarter of this year. But under the improved economic forecast all member states are now expected to regain their pre-crisis GDP levels by the end of next year.
For the first time in months, the Commission said that the economic risks were broadly balanced. Uncertainty over the future progression of the pandemic and related restrictions was balanced out by the prospect that European economies could benefit more than expected from the recovery funds and global trade, coupled with higher-than-expected consumer spending.
But Gentiloni pointed out that a lot will depend on the decisions national governments take over the next months.
“The impact of NextGenerationEU [the EU recovery fund] will begin to be felt this year and next, but we have much hard work ahead – in Brussels and national capitals – to make the most of this historic opportunity”, he said.
A total of 15 member states have already submitted the final versions of their investments and reforms to access the European stimulus. Meanwhile, six member states still need to ratify the Own Resources Decision to allow for the borrowing of the €800 billion to finance the EU fund.
The unprecedented measures taken at national and European level are taking a toll on public finances. Only Denmark and Luxembourg’s deficits will remain below the 3% of GDP threshold this year, while debt will soar to peak this year at around 95% for the EU and 102% for the eurozone.
But still, Gentiloni warned once again against an early withdrawal of the extraordinary measures that could jeopardise the recovery.
For that reason, he confirmed that the Commission will propose this month to keep the Stability and Growth Pact suspended until the end of 2022, to give countries more leeway to maintain fiscal measures in place to support their economies regardless of deficit and debt levels.
Spain is expected to register the bloc’s fastest recovery both this year and the next, covering for the sharp fall in GDP of 10.8% in 2020. The fourth largest European economy is forecast to grow 5.9% in 2021 and 6.8% in 2022.
The Commission projects France will see the bloc’s second largest growth in GDP this year, at 5.7%, with growth expected to slow to 4.2% in 2022.
In 2021 and 2022, Germany’s economy is expected to grow by 3.4% and 4.1% respectively, while Italian growth is projected at 4.2% and 4.4% for the coming two years.
[Edited by Josie Le Blond]