Eurozone poised for recovery as pandemic restrictions lift
The European Commission has described "a light at the end of the tunnel" regarding economic downturns associated with the coronavirus pandemic thanks to the commencement of its vaccination programme despite the resurgence of cases and the discovery of new variants of the virus.
The EU's Winter 2021 Economic Forecast projects that the economy in the euro area will increase by 3.8% this year, with the EU itself expecting a rise of 3.7% for 2021 and 3.9% in 2022.
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The EU's economy contracted slightly for Q4 2020 following a resurgence in Covid cases and countries such as Germany instigating harsher lockdown measures in response, following on from strong third-quarter growth. It is expected the economy will likewise shrink again for Q1 2021.
The report suggests a return to pre-pandemic levels earlier than expected largely due to stronger momentum for late 2021 and 2022 than originally predicted in the Autumn forecast, reflecting wider use of vaccination relief and the relaxing of lockdown restrictions as they become more readily available.
The forecast for this year is lower than previous projections but 2022 offers an opportunity for stronger growth.
Similarly, output is expected to reach pre-pandemic levels by the middle of next year - marking a significant improvement over the autumn prediction of full recovery in early 2023.
The eurozone's economy shrunk by 6.8% last year, making its sharpest decline on record. Economic growth is expected to remain sluggish for the first half of 2021.
Spain and France are set to have the fastest growth for the year, following massive losses attributed to the pandemic, while the Netherlands represents the other end of the spectrum with a relatively small projected growth of 1.8%.
The full economic impact of the pandemic remains uneven across member states and the speed of recovery is also expected to vary significantly.
Stimulus packages and other monetary recovery schemes are set to be in place until the end of the pandemic as the EU fears premature withdrawal of these systems could have untold effects on business and the economy in the long run.
Economy commissioner Paolo Gentiloni said: "As increasing numbers are vaccinated over the coming months, an easing of containment measures should allow for a strengthening rebound over the spring and summer. 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.
"This forecast is subject to multiple risks, related for instance to new variants of COVID-19 and to the global epidemiological situation. On the other hand, the impact of Next Generation EU should provide a strong boost to the hardest-hit economies over the coming years, which is not yet integrated into today's projections.”
Inflation in the Eurozone is expected to increase from 0.3% for 2020 to 1.4% in 2021, being temporarily pushed up by positive base energy inflation, tax adjustments and the continued effects of supply chain disruptions.
It is expected to shrink slightly to 1.3% for 2022, reflecting further economic changes.
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The EU remains open to the unpredictable and highly chaotic nature of the pandemic.
It fears the pandemic could remain more persistent than previously thought or could face further delays to vaccination rollout which, in turn, could delay efforts to further ease lockdown restrictions.
These variables could have an overall knock-on effect on the speed of recovery could have an economic impact on future forecasts.
The EU's €750 billion recovery fund, which is set to start paying out this summer, is further expected to boost recovery. The Recovery and Resilience Facility (RRF), which was given approval last week, would also have untold effects on economic recovery as it wasn't taken into consideration for the report.
Trade commissioner, Valdis Dombrovskis said: "The solid expected pick-up of growth in the second half of this year shows very clearly that we are turning the corner in overcoming this crisis. A strong European response will be crucial to tackle issues such as job losses, a weakened corporate sector and rising inequalities.
"We will still have a great deal to do to contain the wider socio-economic fallout. Our recovery package will go a long way to supporting the recovery, backed up by vaccination roll-out and a likely upswing in global demand.”
The report stresses the importance of the EU's vaccination programme, which Brussels has been rolling out to mixed results.
Supply chains issues have prevented AstraZeneca from supplying the EU with its agreed-upon amount of vaccines and it and other companies are preparing to significantly ramp up vaccine production in order to meet the overwhelming demand thanks to the new disease variants.
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AstraZeneca hope to boost their production to at least one billion doses by the end of 2021 which will allow it to meet its targets with its various trade partners.
EC President von der Leyen has come under fire for the EU failure to meet vaccine demand. The EU's vaccination scheme is also set to apply to countries outside of the EU, who may have difficulties getting access to vaccines during these initial waves.
Eight vaccines are currently in circulation within the EU and three have been approved for rollout.
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