The European Commission has announced that the European Union’s economy will bounce back more quickly than expected,;owing in part to the faster pace of its vaccination programme after a “slow start”.
According to the commission forecast, the EU’s GDP would grow by 4.2% in 2021 and by 4.4% in 2022. This represents an increase in the commission’s forecast in February which was 3.7% and 3.9% respectively.
Also, the eurozone’s GDP is forecast to grow by 4.3% and 4.4%, respectively, according to the commission.
Speaking to the commission’s forecast, Paolo Gentiloni, the EU’s economics commissioner and former Prime Minister of Italy highlighted;the fact that the increased pace in vaccination across the bloc is;the driving factor for a better outlook this year.
“Recovery is no longer a mirage. It is under way. After a weak start to the year, we project strong growth in both 2021 and 2022.”
“The faster pace of vaccinations in recent months should allow restrictions to be;eased further in the second half of the year, and in fact this is already happening,;thereby allowing the economy to bounce back.”
The forecast comes after Europe plunged into a double-dip recession early this year. However, officials noted that the easing of Covid-19 restrictions and huge public investment programmes facilitated by stimulus packages are expected to fuel a sharp recovery.
Gentolini said the decisions by European governments to spend huge sums on supporting households and businesses through the Covid crisis had been “the right decisions to take”, and that without such intervention “the long-term budgetary impact of the crisis would be far worse”.
He also called on EU governments to be cautious in removing the support provided during the pandemic.
Rising debt and unemployment
Since the coronavirus arrived in the continent, European economies have been injecting enormous amounts of fiscal support to prevent companies from going bankrupt and workers from becoming unemployed.
As a result, the commission determined that the debt-to-GDP ratio inside the eurozone will rise to 102% in 2021, the highest level ever recorded, to then slightly fall back to 101% in 2022. The EU as a whole will see a ratio of 94% in 2021 and 93% in 2022.
The Commission also believes the EU’s unemployment rate will be higher in 2021 (7.6%) than it was in 2020 (7.1%) and then recede in 2022 (7%).
Many analysts have expressed concerns about inflation in the bloc in recent weeks. Gentiloni attributed the concerns to a rise in energy prices, a recalibration of inflation statistics, a reversal of VAT cuts and the introduction of a carbon tax in Germany.
He posited that inflation in the EU is expected to increase from 0.7% in 2020 to 1.9% this year and to moderate to 1.5% in 2022.
The commission also predicted that government deficit will spike to 7.5% of GDP in the EU, compared to 0.5% two years ago. All EU nations except Denmark and Luxembourg are on track to have deficits exceeding 3% this year.
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