Eurozone should see return to pre-crisis levels by 2022

The European Commission's Spring 2021 economic forecast expects the euro area's economy to grow by 4.3% year-on-year for 2021 and by 4.4% in 2022, seeing a significant spike when compared to the bloc's previous estimates published in February.

The report indicates progress may be staggered as different members come out of the pandemic at different rates but predicts all member states should see their economies return to pre-pandemic levels by 2022.

Read more: Eurozone poised for recovery as pandemic restrictions lift

The updated report sees a revision of the original estimates put forth by the EU, originally stating the euro area's economy would increase by 3.8% in 2021 and 3.9% in 2022.

2020 saw the EU's economy contracted by 6.1% in 2020, although the Commissions claims a majority of businesses managed to adapt well to working during a pandemic, although sectors such as transport, tourism and in-person services continued to suffer.

While the eurozone's economy began to climb again in summer last year, the implementation of further lockdowns following a spike in cases caused previous estimates for recovery to fall short.

However, the increased rollout of vaccines and the gradual easing of restrictions should create an atmosphere for full recovery driven by private consumption, investment and increased demand for European exports.

Public investment is also set to reach its highest levels in a decade by 2022, driven by the Recovery and Resilience Facility (RRF), which forms part of the Next Generation EU scheme - the EU's official pandemic recovery initiative.

Also affected will be labour rights and unemployment rates, which have already seen significant improvements compared with the same period last year.

“While we are not yet out of the woods, Europe's economic prospects are looking a lot brighter," according to Valdis Dombrovskis, the Commissioner for trade and economy.  "As vaccination rates rise, restrictions ease and people's lives slowly return to normal, we have upgraded forecasts for the EU and euro area economies for this year and next."

"Much hard work still lies ahead, and many risks will hang over us as long as the pandemic does.  Until we reach solid ground, we will continue to do all it takes to protect people and keep businesses afloat," he added.

A rise in energy prices across the continent saw inflation increase, according to the report, despite reports of cheaper energy during the earlier parts of the pandemic as a result of excess power generation and the rise of renewables.

Read more: Lockdown energy use "a glimpse into the future," says EnAppSys chief

Inflation rates are set to vary over the course of the year as changes to VAT cause fluctuations when compared to last year.

Inflation in the EU is now forecast at 1.9% in 2021 and 1.5% in 2022. For the euro area, inflation is forecast at 1.7% in 2021 and 1.3% in 2022.

Many member states took on significant debt owing to the pandemic, primarily as a result of public spending to mitigate the effects of the pandemic on the general population through furlough schemes and increased public health spending.

The aggregate general government deficit is set to rise by about three-quarters of a percentage point to 8% of GDP in the euro area for 2021.

All member states, except for Denmark and Luxembourg, are forecast to run a deficit of more than 3% of GDP in 2021, the EC claims.

"Unprecedented fiscal support has been – and remains – essential in helping Europe's workers and companies to weather the storm," according to Paolo Gentiloni, Commissioner for Economy, adding the deficit is set to peak this year before beginning to decline.

He said: “The shadow of Covid-19 is beginning to lift from Europe's economy. After a weak start to the year, we project strong growth in both 2021 and 2022.

"The impact of Next Generation EU will begin to be felt this year and next, but we have much hard work ahead – in Brussels and national capitals – to make the most of this historic opportunity."

Read more: EU suspends investment deal with China over sanctions

The Commissions warns that premature withdrawal from the public spending schemes could jeopardise pandemic recovery, mirroring similar sentiments in the last forecast.

However, Commissioners also noted that delayed withdrawal could also significantly affect market upturn through barriers and "unviable firms."

Stronger global growth could also stand to have a positive impact on the European economy as well, it claims, although stronger US growth could " push up US sovereign bond yields" causing disorderly adjustments in financial markets that would hit highly indebted emerging market economies with high foreign currency debts particularly hard.

Back to Homepage

Back to Politics & Economics