The European Union will see its economy contract by -7.4% this year, entering its deepest recession, the European Commission said Wednesday (May 6). Inflation is forecast at 0.6% while the unemployment rate is forecast to rise to 9%.
“Europe is experiencing an economic shock without precedent since the Great Depression. Both the depth of the recession and the strength of recovery will be uneven, conditioned by the speed at which lockdowns can be lifted, the importance of services like tourism in each economy and by each country's financial resources“ Paolo Gentiloni, the bloc's Commissioner for the Economy said when he presented the EU’s 2020 spring economic forecast in Brussels.
Growth projections for the EU have been revised down by around nine percentage points compared to the Autumn 2019 Economic Forecast. According to the new report, the pandemic has hit all Member States, but both the drop in output in 2020 (from -4¼% in Poland to -9¾% in Greece) and the strength of the rebound in 2021 are set to differ markedly.
Greece (-9.7), Italy (-9.5%), Spain (-9.4), and Croatia (-9.1%) are expected to suffer the most, recording the biggest economic fallout this year. France, the second largest economy in the bloc, can prepare for a 8.2% fallout while Germany, Europe’s growth engine, is seen contracting 6.5%.
The pandemic could also leave permanent scars through bankruptcies and long-lasting damage to the labour market as unemployment is expected to be rampant. Nearly one in five workers might lose their jobs in Greece and Spain with an expected 19.9% and 18.9% unemployment rate. The ratio will only be 4% in Germany.
The EU's executive arm also said the EU economy is not expected to have fully made up for this year's losses by the end of 2021. Investment will remain subdued and the labour market will not have completely recovered.
The report foresees a 7.9% EU-wide unemployment rate in 2021, maintaining nearly 17% ratio in Greece and Spain. The EU economy is forecast to grow by around 6% in 2021 and consumer prices are expected to grow 1.3%.
The forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of 23 April.
The European Commission's next economic forecast will be the Summer 2020 Interim Economic Forecast which is scheduled to be published in July 2020. This will cover only GDP growth and inflation. The next full forecast will be in November 2020.
The grim set of predictions predict a disastrous impact that is deeply uneven, but still widespread.