EU faces deeper recession than expected: European Commission

Andrew Cummings
July 7, 2020

The euro zone economy will drop deeper into recession this year and rebound less steeply in 2021 than previously thought, the European Commission forecast on Tuesday, with France, Italy and Spain struggling the most due to the COVID-19 pandemic. It predicts that the Finnish economy will shrink by 6.3 percent this year and grow by just 2.8 percent next year.

Although the European Union as a whole has been hard-hit by the downturn, Gentiloni said the drop and the rebound will differ widely from one member country to another.

In early May, the Commission had forecast a downturn this year of 7.7 percent and a rebound in 2021 of 6.3 percent.

Gentiloni said the expected effects of the recovery plan have not been taken into account in the growth forecast, and that its quick implementation could help brighten the outlook.

Germany - the EU's largest economy - is forecast to see a 6.3% fall in GDP and the Netherlands will see a less severe downturn at -6.8%, while Poland will be the least badly hit with a 4.6% fall.

"The summer forecast shows, first of all, that the road to recovery is still paved with uncertainty", the EU's economy commissioner Paolo Gentiloni said at a press conference in Brussels. The policy response across Europe has helped to cushion the blow for our citizens, yet this remains a story of increasing divergence, inequality and insecurity.

"We are still sailing in stormy waters and we are facing many risks, including a significant new wave of infection", Dombrovskis warns.

The downbeat assessment of Europe's economy comes amid concern the USA recovery may also be faltering as a surge of new coronavirus infections prompts states to delay and in some cases reverse plans to let stores reopen and activities resume. "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", he said in a statement.

The EU official claims there are a variety of risks that could lead to economic forecasts becoming more pessimistic, including a potential second wave of coronavirus which will result in a further lockdown.

Risks to the UK economy were "predominantly to the downside", the commission said, because its forecast is based on the current UK-EU trading relationship, which ends on 31 December 2020.

The impact of the pandemic on economic activity was already considerable in the first quarter of 2020, even though most Member States only began introducing lockdown measures in mid-March.

The group of 19 European Union nations that use the euro as their currency will see a record economic decline of 8.7% this year, and grow by 6.1% in 2021.

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