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We have five key messages.
The resurgence of the pandemic and the need to tighten health-related restrictions resulted in a weak start to the year. But the faster pace of vaccinations in recent months should allow restrictions to be eased further in the second half of the year – in fact, this is already underway – and thereby allow the economy to bounce back.
Overall, the EU economy is forecast to grow by 4.2% in 2021 and to strengthen to around 4.4% in 2022. In the euro area, GDP growth is forecast at 4.3 this year and 4.4% next year.
This is a brighter outlook than expected in the winter forecast, due to two main factors.
Second, employment is expected to grow next year and unemployment to decline. While government support schemes, including the EU-backed SURE instrument, have prevented unemployment rates from rising dramatically, labour markets will take time to fully recover. And we know that youth unemployment has risen more than for the labour force as a whole. In short, the risk of scarring, with a worsening of poverty, social exclusion and inequality, is very real. When we present overall positive forecasts, we should not forget this.
Third, fiscal measures have sheltered the economy and pave the way for the recovery.
In this context, significant EU expenditures are assumed to be financed by grants from the Recovery and Resilience Facility (RRF). The cumulative impact on EU GDP over the 2020-2022 period is estimated, in this forecast, at 1.2% of the EU's 2019 real GDP.
Fourth, inflation is set to peak this year under the impact of some transitory factors, such the sharp rise in oil prices. However, it is set to moderate again in 2022.
And fifth, the uncertainty surrounding the outlook will remain elevated. Overall, the risks, which are related to both epidemiological and economic factors, are considered to be broadly balanced.
Europe lived through a ‘third wave' of the pandemic early this year.
After a slow start, vaccination campaigns across the EU have accelerated significantly. Common procurement and distribution prove to be the right thing to do. This progress should lead to a steadily more marked fall in infections.
To date, on average in the EU, more than 76% of people aged 80 years and above have received at least one vaccine dose, and more than half are fully vaccinated.
Going forward, our assumption is that the pandemic will evolve in a way that allows for restrictions to be marginally eased in the course of the second quarter. We are already observing such steps in a number of countries.
The global outlook has improved considerably for both advanced and emerging market economies.
After somewhat stronger-than-expected growth last year, the global economy continued with positive momentum early this year as restrictive measures were loosened and aggressive policy support was put in place, especially in advanced economies.
We know that there are exceptions. For example, we all look to India with worries about the situation and in solidarity with the suffering people.
Global GDP excluding the EU is expected to grow by 5.9% in 2021 and by 4.2% in 2022, amid a solid expansion in global trade (excl. EU). EU export markets are thus set to increase by 8.3% in 2021 and 6.4% in 2022.
This increase in EU export market is part of the strength of the possible growth that we estimate.
Countries
and regions are expected to recover at varying rates, due also to the
different strength of the pandemic around the world.
We have differences at global level, national level and sectoral levels.
The prospects for the US economy have improved significantly, notably in 2021. This reflects both progress in vaccinations and the two large fiscal packages adopted in late 2020 and early 2021. More robust US growth is expected to create positive spillovers for the global economy. For the EU, the estimated benefit is a cumulative boost of about 0.5 percentage points in 2021-22.
In China, growth is set to continue at a rapid pace, aided by its early control of the pandemic and buoyant external demand.
It's important to keep this international perspective in mind when assessing the improved outlook for the European economy.
Elsewhere, many emerging and developing economies are in a more challenging situation. The low-income countries are in a very difficult situation, with difficult access to vaccines and limited policy space weighing on their growth prospects.
The EU economy faced another setback in late 2020 as the resurgence of the pandemic prompted a new round of containment measures. With output falling again in the last quarter of 2020 and the first of 2021, by a cumulative 0.9%, the EU was pushed back into a technical recession.
However, the EU economy is set to rebound strongly this year and next. The latest Commission survey results suggests this.
As vaccinations accelerate, containment measures are set to be progressively lifted, allowing the EU economy to rebound this quarter and even more so during the third quarter as the impact of the RRF also kicks in. Growth is then forecast to remain solid in the last quarter of 2021.
Private consumption will be the main growth engine as household spending benefits from dissipating uncertainty and some households start to spend more and save less once restrictions are eased.
An improved outlook at home and abroad is expected to propel investment. A continuation of favourable financing conditions, recovering profitability among firms and increasing capacity utilisation rates all push in the same direction.
These tailwinds are likely to be strongly reinforced by the support for public and private investment through the RRF. The EU's public investment-to-GDP ratio is forecast to rise to almost 3.5% in 2022, up from 3.0% in 2019. This would be its highest figure since 2010.
Finally, the strong rebound in the EU's major trading partners is likely to have a positive impact on EU exports. This will particularly be the case for merchandise exports while the recovery of services, exports such as tourism, is set to take longer.
Economic activity in the EU is now projected to recover to its pre-crisis level in the fourth quarter of 2021.
In the euro area, this threshold should be crossed in the first quarter of 2022.
Still, the economy will remain below its pre‑crisis trend, illustrated here by the autumn 2019 forecast prepared before the outbreak of the health crisis. The risk of scarring effects remains real, and underlines the ongoing importance of appropriately targeted supportive policies.
This need is still there.
NextGenerationEU represents an unprecedented boost to the EU economy. The spring forecast for the first time incorporates the impact of the RRF for all Member States.
The amount of expenditures and other costs financed by RRF grants included in this forecast varies quite a lot across Member States. This reflects their differences in RRF allocations and their assumed absorption profiles.
Overall, the total EU expenditure assumed to be financed by RRF grants amounts to €62 billion in 2021 and €77 billion in 2022. Cumulatively, this is around 40% of the total RRF grant allocation, the lifetime of which extends until 2026. This implies that on average, Member States count on fast absorption of their RRF allocation.
With a horizon of less than two years, this forecast could assess only the RRF's immediate and direct impact on GDP from increased domestic demand. It could only partially capture the indirect effects that will be there.
Overall, the RRF is expected to boost EU GDP by approximately 1.2% of the EU's 2019 real GDP over the period 2020-2022. After shrinking last year, all EU economies are forecast to join the recovery this year, and grow strongly in 2022.
But as we have been warning for some time, just as the depth of the recession has varied widely, so too will the speed of the recovery.
Still, all EU economies are now forecast to reach or surpass their pre-pandemic GDP levels by the end of 2022 at the latest, but not the previously estimated trends, as I said....
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