EU forecasts deeper economic hit from pandemic

The European Union’s latest economic forecast projects that the bloc's economy will contract further than expected because of the coronavirus pandemic

The 27-nation EU economy will contract by 8.3% this year, before growing 5.8% in 2021, according to the latest predictions released Tuesday by the European Commission.

“The road to recovery is still paved with uncertainty," EU Economy Commissioner Paolo Gentiloni told reporters in Brussels. “This is mostly linked to the epidemiological uncertainty."

In the previous forecasts released in May, when most of the continent was still under lockdown, GDP was forecast to contract by about 7.5% this year and to bounce back by 6% next year.

The European Commission said the impact on economic activity in 2020 will be worse than expected because “the lifting of lockdown measures is proceeding at a more gradual pace than assumed in our Spring forecast."

That was illustrated in separate data from Germany on Tuesday that showed industrial production rebounded in May but was far from making up for the collapse of the preceding months.

“We have to live with the danger of local outbreaks" that could lead to plans to re-enter local lockdowns slowing down the economic recovery, Gentiloni said.

The group of 19 EU nations that use the euro as their currency will see a record economic decline of 8.7% this year, and grow by 6.1% in 2021. In May it had forecast a 7.8% decline this year, and growth of 6.3% in 2021.

To ensure a quick bounce back, Gentiloni urged member states to adopt as soon as possible a recovery fund aimed at pulling the EU out of the recession. EU governments leaders and heads of state will meet next week in Brussels to try to reach a compromise on the 750 billion-euro package proposed by the commission.

Gentiloni said the expected effects of the recovery plan have not been taken into account in the growth forecast, and that its quick implementation could help brighten the outlook.

“It's important that an agreement is reached swiftly," he said. “To inject new confidence and new financing into our economy in critical times."