Europe’s economic recovery from the impact of COVID-19 is gaining momentum, the European Commission concluded in an economic forecast, with the rebound credited to the recovery fund, vaccines, global trade and the lifting of lockdowns.
“For the first time we see optimism prevailing over uncertainty,”
Economy Commissioner Paolo Gentiloni told reporters via video link and
welcomed the departure from a year of “very negative” Commission
forecasts.
The Commission significantly revised its growth forecast for the
eurozone, up to 4.3% in 2021 and 4.4% in 2022, and the EU, 4.2% this
year and 4.4% the next. The recovery in Europe is being boosted by a
strong rebound in the US and China. According to the Commission’s
estimates, the stimulus packages approved by the Biden Administration
could add around 0.5% to the European output by 2022.
Although the recovery is “no longer a mirage”, Commissioner Gentiloni
said that its quality, strength and duration will depend on the
evolution of the pandemic. “Our economic fate is primarily in our own
hands. And that is why we need to roll up our sleeves,” he added.
Amid doubts around the implementation of the €800 billion recovery
fund, European Commission and experts stress that the EU instrument is
not a US-like emergency stimulus but an investment tool for the
medium-term to transform the European economy.
The EU executive is also factoring in, for the first time, the impact
of around 40% of the Recovery and Resilience Facility, the main pillar
of the EU recovery fund. RRF grants of €62 billion in 2021 and €77
billion the year after are projected to be responsible for around 1.2%
of EU growth by 2022.
Europe fell into recession again in the first quarter of this year.
But under the improved economic forecast all member states are now
expected to regain their pre-crisis GDP levels by the end of next year.
For the first time in months, the Commission said that the economic
risks were broadly balanced. Uncertainty over the future progression of
the pandemic and related restrictions was balanced out by the prospect
that European economies could benefit more than expected from the
recovery funds and global trade, coupled with higher-than-expected
consumer spending.
But Gentiloni pointed out that a lot will depend on the decisions national governments take over the next months.
“The impact of NextGenerationEU [the EU recovery fund] 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”, he said.
A total of 15 member states have already submitted the final versions
of their investments and reforms to access the European stimulus.
Meanwhile, six member states still need to ratify the Own Resources
Decision to allow for the borrowing of the €800 billion to finance the
EU fund.
The unprecedented measures taken at national and European level are
taking a toll on public finances. Only Denmark and Luxembourg’s deficits
will remain below the 3% of GDP threshold this year, while debt will
soar to peak this year at around 95% for the EU and 102% for the
eurozone.
But still, Gentiloni warned once again against an early withdrawal of
the extraordinary measures that could jeopardise the recovery.
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