The EU will experience a “recession of historical proportions” this year due to the corona crisis. The European Commission expects an average 7.7 percent contraction for the nineteen euro countries and an average unemployment rate of 9.6 percent. But next year the euro zone will creep out of the valley, EU hopes. Brussels expects an average growth of 6.3 percent with an increase in investments of 10.2 percent.
The corona crisis is “a symmetrical shock,” said Vice-President Valdis Dombrovskis when presenting the latest forecasts. “All EU countries are affected and are expected to experience a recession.” In February, Brussels still assumed an average growth of 1.2 percent. The socio-economic consequences are enormous, with an unemployment rate of 8.6 falling next year.
Dombrovskis acknowledges that the scale and size of the coronashock may only be a preliminary estimate at this time.
The immediate fallout will be much more severe for the global economy than the financial crisis. The depth of impact will depend on the development of the pandemic, our ability to safely restart economic activity and then bounce back.
But the resilience of the euro countries also depends on “the structure of their economies and their ability to respond with stabilizing policies,” the committee said. For the Netherlands, Brussels expects a contraction of 6.8 percent this year, for Germany 6.5. The committee expects the recovery in the Netherlands next year with a growth of 5 percent to lag behind the average of 6.3 percent in the eurozone.
Italy, Spain and France, all severely affected by the epidemic in their country, are also being hit hardest. Their economies will shrink by 9.5 percent, 9.4 percent and 8.2 percent, respectively, according to Brussels. They are all expected to grow by around 7 percent by 2021.
Debts in the nineteen euro countries are rising to an average of 102.7 percent, with Greece and Italy at peak levels (196.4 and 158.7 percent, respectively), the average budget deficit reaching unprecedented billions of measures to keep businesses and citizens going. 8.5 percent of gross national income (GNI). Investments will fall by 13.3 percent this year, but will increase by 10.2 percent in 2021. Inflation in the eurozone is expected to fall to 0.2 percent in 2020 and reach 1.1 percent in 2021.
The forecasts are clouded by an uncertainty that is higher than usual, the committee says. They are based on a series of assumptions about the evolution of the coronavirus pandemic and the containment measures. For example, Brussels assumes that lockdowns will gradually be lifted across the EU from May onwards, increasing economic activity. But EU Commissioner Paolo Gentiloni (economy) warned that if the lung virus flares up again, the socio-economic consequences could get much worse, while a vaccine can actually provide a more positive future.