The European Commission believes that with the deployment of the Covid-19 vaccines, the economic rebound will be robust in 2021, at 3.8% of GDP for the euro area and 3.7% of GDP for the European Union.
“Following the contraction in almost all Member States, except Ireland, GDP is expected to expand in all Member States in 2021 and 2022. This is the famous light at the end of the tunnel!”, said the European Commissioner for the Economy, Paolo Gentiloni, on Thursday 11 February, when presenting the European Commission’s winter economic forecasts.
Mr Gentiloni mentioned that the environment is currently “difficult” and uncertain, but that the risks to the economy are now “more balanced”. Rapid deployment of pandemic vaccines, more robust consumption than expected when containment measures are gradually lifted during 2021, and the expected positive impact of the Next Generation EU Recovery Plan (up to “2%” additional GDP in the years of full implementation) would boost recovery favourably.
On the other hand, the persistence of coronavirus variants despite vaccines, an economic and social crisis that may leave deeper “scars” and the persistence of divergences between Member States will complicate the return to growth.
Compared with its autumn forecasts, the Commission has thus revised its growth forecasts for 2021 downwards (3.8% of GDP for the euro area and 3.7% of GDP for the EU) and upwards those for 2022 (3.8% and 3.9% respectively), whereas 2020 was marked by a strong recession (-6.8% and -6.3%). Next year, growth could even return to pre-crisis levels faster than it was estimated to be in the fall of 2020.
There are strong divergences between Member States. With 3.0% growth in 2020, Ireland is the only economy in the EU to have grown during the year. In comparison, countries more dependent on transport and tourism have experienced a sharp recession: -11.0% of GDP in Spain, -10.0% of GDP in Greece. In Italy, the recession was -8.8%, in France -8.3%. It was less severe in Germany (-5.0%) and the Netherlands (-4.1%).
For 2021, the divergences will be less, with growth in the EU27 ranging from 1.8% of GDP in the Netherlands to 5.6% in Spain.
With regard to inflation, the Commission predicts that price increases, after virtually stagnating in 2020 (0.3%), will start to rise again in 2021 (1.4%) and continue in 2022 (1.3%) in the euro area.
In these circumstances, the Commissioner advocated maintaining “public support measures must be in place long enough to sustain recovery”, even if these measures are intended to remain “temporary“.
Since the outbreak of the pandemic, the Stability and Growth Pact has been frozen and the State Aid framework has been eased to allow Member States to spend freely to deal with Covid-19 and its economic and social consequences. In total, the combined budgetary measures amount to 4% of EU GDP and the state guarantees granted amount to 19%, a situation that has led to high public debt.
According to Mr Gentiloni, the debate on the appropriate budgetary positioning at European level will take place “in the coming weeks“. Without commenting explicitly, he nevertheless slipped in that “the difficulties will not disappear at the end of the current year”.
Italy. Asked about the political situation in Italy, the former President of the Italian Council of Ministers expressed his “confidence” in the ability of a possible “Europeanist” government led by the former President of the ECB, Mario Draghi, to move “in the right direction”.
He also pointed out that, according to the country’s authorities, the Italian recovery plan currently being drawn up in the framework of Next Generation EU could bring an economic growth surplus of 0.6% of the national GDP that the winter economic forecasts for Italy do not take into account (growth of 3.4% of GDP in 2021) (see EUROPE 12635/10).
The Commission will present its spring economic forecasts in May.
See the winter economic forecast: http://bit.ly/3qb9zgl (Original version in French by Mathieu Bion)