The European Commission’s winter economic forecast estimate that the EU economy will grow by 3.7% in 2021 and 3.9% in 2022. Europe remains in the grip of the coronavirus pandemic with many countries experiencing a resurgence in cases and the need to reintroduce or tighten containment measures. At the same time, the start of vaccination programmes has provided the EU with grounds for cautious optimism.
Economic growth is set to resume in the spring and gather momentum in the summer as vaccination programmes progress and containment measures gradually ease. An improved outlook for the global economy is also set to support the recovery, with the US and Japan also undertaking strong recovery measures.
The economic impact of the pandemic remains uneven across the EU with the speed of the recovery projected to vary significantly.
“We can say we face fewer unknown risk and more known risks”
Risks surrounding the forecast are described as more balanced since the autumn, though they remain high. They are mainly related to the evolution of the pandemic and the success of vaccination campaigns.On the positive side, extensive vaccination could lead to a faster-than-expected easing of containment measures and therefore an earlier and stronger recovery.
The forecast has not fully factored in the impact of the EU’s recovery instrument of which the centrepiece is the Recovery and Resilience Facility (RRF), this could fuel stronger growth than projected.
In terms of negative risks, the pandemic could prove more persistent or severe in the near-term than assumed in this forecast, or there could be delays in the roll-out of vaccination programmes. This could delay the easing of containment measures, which would in turn affect the timing and strength of the expected recovery.
There is also a risk that the crisis could leave deeper scars in the EU’s economic and social fabric, notably through widespread bankruptcies and job losses. This would also hurt the financial sector, increase long-term unemployment and worsen inequalities.
Paolo Gentiloni, Commissioner for Economy said: “Europeans are living through challenging times. 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. The EU economy should return to pre-pandemic GDP levels in 2022, earlier than previously expected – though the output lost in 2020 will not be recouped so quickly, or at the same pace across our Union.”
Asked about the impact of Brexit, Gentiloni said that the exit of the UK and the free trade agreement that the EU finally reached with the UK implies an output loss of around half a percentage point of GDP until the end of 2022 for the Union and some 2.2% loss for the UK in the same period. He compared these figures with the estimates in the autumn forecast, which were based on the assumption of no agreements and of a WTO-terms deal. The agreed TCA reduces the negative impact on average by about one third for the EU and one quarter for the UK.