Tuesday

28th Mar 2023

Vaccine drives spur better-than-expected EU economic recovery

  • Economy commissioner Paolo Gentiloni cautioned EU governments against scaling back their economic support packages too soon (Photo: European Commission)

The EU Commission on Wednesday (12 May) said it expected Europe's economy to grow faster than previously projected - as the vaccination campaigns help economies open up across the continent and recover from the pandemic's economic blow.

The EU economy is estimated to expand by 4.2 percent of GDP in 2021, and by 4.4 percent in 2022 - with the eurozone economy rebounding with 4.3 percent this year and 4.4 percent next year, the commission said.

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All EU countries could see their economies return to pre-crisis levels by the end of next year, after the historic economic shock of 6.1 percent contraction in the EU, and a 6.6 percent shrinking in the eurozone, in 2020.

"The shadow of COVID-19 is beginning to lift from Europe's economy. After a weak start to the year, we project strong growth in both 2021 and 2022," economy commissioner Paolo Gentiloni said.

The projected growth is also driven by a better than expected global recovery and the €800bn EU recovery fund planned to start pumping funds into European economies in the second half of this year.

Gentiloni warned, however, that even though government schemes have prevented unemployment rates from rising dramatically, the labour market will need more time to recover.

The risk of worsening of poverty, social exclusion, and inequality "is very real", he added.

Peak debt

Gentiloni cautioned governments against withdrawing their economic support packages too soon, which could undermine the recovery.

EU budgetary rules have been suspended until the end of 2022, and member states are expected to start a debate soon whether fiscal rules - a three-percent cap on the deficit, and 60-percent of GDP debt ratio - should be reformed.

Gentiloni said public debt is set to peak this year in the EU at 94 percent of GDP this year before decreasing slightly to 93 percent in 2022. France, Italy, Spain, Greece, Belgium and Cyprus are expected to have debt of over 100 percent next year.

Denmark and Luxembourg are the only member states not to run a deficit higher than three percent. Next year 15 EU countries are expected to be above the three-percent threshold.

Spain, which was the hardest-hit EU economy last year, and which saw a contraction of 10 percent in 2020, will grow 5.9 percent this year and 6.8 percent in the next, according to the commission's estimate.

Italy is set to expand by 4.2 percent this year and 4.4 percent next. Germany, the EU's largest economy, which suffered a smaller 2020 slowdown, could grow 3.4 percent in 2021 and 4.1 percent in 2022.

France is expected to expand by 5.7 percent this year and 4.2 percent next.

The recovery fund should also lift the growth prospects, with an estimated 1.2 percent of GDP uplift, according to the commission.

Gentiloni said that the EU grants sent to member states to help reboot their economies could be €62bn in 2021 and €77bn next year.

Member states are currently filing their national investment and reform plans to the commission, which will have two months to assess them, before the council of member states makes a decision on unlocking the funds. The commission hopes to transfer the first funds in July.

First recovery euros could be paid out in July

Economy commissioner Paolo Gentoloni said the real challenge is whether member states can stick to their national plans and timelines. However, more than a dozen EU countries still need to ratify legislation to start the funding.

EU Commission: This Covid wave will not hit economy as hard

"Our estimate is that the economic consequences will not be as serious as they have been last winter," economic commissioner Paolo Gentiloni told reporters when presenting the executive's economic recommendations for EU countries.

Commission to approve first Covid-recovery plans next week

This means that, following council approval, and after the financing agreement has been signed with EU governments, the first countries can receive pre-financing from the recovery fund, of up to 13 percent of their allocated funds.

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