12 November 2021

Remarks by Commissioner Gentiloni at the press conference on the Autumn 2021 Economic Forecast

Disruptions in global logistics and shortages of several raw and intermediate inputs have been increasingly weighing on activity in the EU. Still, strong domestic demand is expected to continue fuelling the expansion in the EU.

Let me begin with the five key messages emerging from this forecast:

First, the EU economy is set to expand strongly over the forecast horizon. We forecast the EU economy to grow by 5% this year and to keep a solid pace of growth of 4.3% next year before easing to 2.5% in 2023.

Disruptions in global logistics and shortages of several raw and intermediate inputs have been increasingly weighing on activity in the EU. Still, strong domestic demand is expected to continue fuelling the expansion in the EU.

An improving labour market, decreasing household saving rates, favourable financing conditions and the full deployment of the Recovery and Resilience Facility are set to propel the economic expansion. Foreign demand is also expected to be supportive of growth.

Second, labour markets are set to recover and move into expansion. With economic activity expected to keep growing, employment should increase above pre-pandemic levels and the unemployment rate should decrease to 6.5% in 2023.

Third, inflation is expected to start easing next year. Recent increases in inflation are, to a large extent, linked to the fading forces that dragged inflation lower during the pandemic. Strong demand following the re-opening of economies, compounded by supply bottlenecks and higher energy prices, add to current inflation developments. These developments can be largely linked to the post-pandemic economic adjustments and are expected to be largely transitory.

Inflation in the EU is expected to peak at 2.6% this year before easing slightly to 2.5% next year and 1.6% in 2023.

Fourth, government deficits are forecast to narrow marginally this year – to 6.6% for the EU as a whole – as many Member States continue to provide high levels of support to households and firms. As the economy expands, many governments have started to phase out the emergency support measures and revenues have started to rebound. The aggregate budget deficit should nearly halve to 3.6% next year, and reduce further to 2.3% in 2023.

The aggregate debt-to-GDP ratio is projected to peak at 92% in the EU this year (100% in the euro area) to start declining in 2022, reaching 89% of GDP in 2023 (97% in the euro area).

And fifth, uncertainty remains substantial, and the risks to the outlook are tilted to the downside. The recovery continues to be heavily dependent on the evolution of the pandemic, both within and outside the EU. Furthermore, the economic headwinds that I spoke about add to downside risks. By contrast, domestic demand may prove stronger than expected, as we witnessed in the spring.

The strong rebound in the second and third quarters of this year pushed the EU economy back to around its level of the last quarter of 2019. This happened one quarter earlier than we expected last May, when I presented our Spring Forecast....

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