Sunday, June 13

The EU economy is projected to recover faster thanks to the Covid vaccine | Economic Sciences

The EU economy will recover faster than expected, partly due to the accelerated pace of its vaccination program after a “slow start”, the European Commission has predicted.

The brighter outlook from Brussels also takes into account payments from the EU’s € 800 billion (£ 686 billion) recovery package and a more pronounced-than-anticipated rebound in global trade and activity, driven largely by measured by the results of the US and China.

The commission forecast that the EU’s GDP would grow by 4.2% in 2021 and 4.4% in 2022, compared with a February prediction of 3.7% and 3.9%. Eurozone GDP is forecast to grow by 4.3% and 4.4%, respectively.

Paolo Gentiloni, EU economic commissioner and former prime minister of Italy, said: “The faster rate of vaccination in recent months should allow restrictions to be further lowered in the second half of the year, and indeed this already it is happening, and thus allowing the economy to recover. “

Europe plunged into a double dip recession earlier this year, but easing of Covid-19 restrictions and huge public investment programs facilitated by next-generation EU package payments are expected to drive a strong Recovery.

Of the largest European economies, Germany’s GDP contracted 1.7% in the first quarter of 2021, compared with the UK’s 1.5% during the same period, but is expected to recover to previous levels to the crisis towards the end of this year. Growth of 3.4% is projected in 2021 and 4.1% in 2022.

Economic activity in France is expected to recover by 5.7% this year and grow by 4.2% next, while the GDP of Spain, the most affected European economy, will grow by 5.9% in 2021 and a 6.8% in 2022. Both countries are expected to reach pre-pandemic production levels by the end of 2022.

By comparison, the commission expects UK GDP to rise 5% in 2021 and 5.3% in 2022, noting that “vaccine rollout has progressed quite rapidly.” The latest forecasts released by the Bank of England last week suggest that economic growth in the UK will reach 7.25% in 2021 and 5.75% in 2022.

The commission expects the UK to reach pre-pandemic levels by the third quarter of 2022, while the Bank of England believes the UK will return to early 2020 levels later this year. The economy suffered a GDP drop of 9.8% in 2020, the second biggest drop in Europe after Spain.

The forecast adds that “the UK’s exit from the EU is expected to weigh on trade and growth.”

“This became apparent in early 2021 when the UK’s trade volumes with the EU fell dramatically,” the commission’s forecast reads. “While some of these disruptions will be temporary, as businesses get used to the new rules, UK trade is expected to remain permanently lower over the forecast period compared to a situation where relationships EU-UK trade deals have not changed. “

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However, there is praise for a measure announced in Rishi Sunak’s budget known as the “super deduction,” which allows companies to offset 130% of eligible investment expenses.

This is expected to have a positive impact on business investment, says the commission. “Business investment is expected to recover more strongly in the second half of 2021 and in 2022, as uncertainties about the evolution of the pandemic and the new EU-UK trade relationship fade.”

Gentolini said that European governments’ decisions to spend huge sums supporting households and businesses during the Covid crisis had been “the right decisions to make,” and that without such intervention, “the long-term budgetary impact of the crisis would be much worse “. .

Only two member states, Denmark and Luxembourg, are projected to have a budget deficit of less than 3% of GDP in 2021, the threshold that EU countries are normally expected to maintain. Under the EU’s Stability and Growth Pact, which will remain suspended until 2023, debt should also not exceed 60% of output, but the GDP-to-debt ratio is expected to peak at 95% this year.

Gentolini called on EU governments to be cautious in withdrawing support provided during the pandemic, with the unemployment rate expected to rise to 7.6% this year before falling to 7% in 2022 but above the rate. 6.7% in 2019.

“The shadow of Covid-19 is starting to peel off the European economy,” he said. “After a weak start to the year, we project strong growth in both 2021 and 2022. Unprecedented fiscal support has been, and continues to be, essential in helping Europe’s workers and businesses weather the storm.”

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