European Commission forecasts historic recession for 2020 – UPDATE

The coronavirus pandemic has severely affected consumer spending, industrial output, investment, trade, capital flows and supply chains. The expected progressive easing of containment measures should set the stage for a recovery. However, 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 labor market will not have completely recovered.

The EU and member states have spent heavily to support the economy, and as a result, the aggregate government deficit of the euro area and the EU is expected to surge from just 0.6 percent of GDP in 2019 to around 8.5 percent in 2020, before falling back to around 3.5 percent in 2021.

After having been on a declining trend since 2014, the public debt-to-GDP ratio is also set to rise. In the euro area, it is forecast to increase from 86 percent in 2019 to 102.75 percent in 2020 and to decrease to 98.75 percent in 2021. In the EU, it is forecast to rise from 79.4 percent in 2019 to around 95 percent this year before decreasing to 92 percent next year.

The EU’s executive arm also underlined that the forecast, where the baseline assumes that lockdowns will be gradually lifted from May onwards, is clouded by a higher than usual degree of uncertainty. The risks surrounding this forecast are also exceptionally large and concentrated on the downside. For example, a more severe and longer lasting pandemic than currently envisaged could cause a far larger fall in the economy.

Source: Xinhua