EU Commissioner for Economy, Paolo Gentiloni on Wednesday said that the shadow of COVID-19 is beginning to lift from Europe’s economy after a weak start to the year and projects strong growth in both 2021 and 2022.
It is projected the EU economy will expand by 4.2% in 2021 and by 4.4% in 2022. The euro area economy is forecast to grow by 4.3% in 2021 and 4.4% in 2022, which will represent a significant upgrade of the growth outlook compared to the Winter 2021 Economic Forecast.
„Growth rates will continue to vary across the EU, but all Member States should see their economies return to pre-crisis levels by the end of 2022,” said the European Commission in a press release.
The EU economy contracted by 6.1% and the euro area economy by 6.6% in 2020. The EU and euro area economies are expected to rebound strongly as vaccination rates increase and restrictions are eased.
The Commission explained that this growth will be driven by private consumption, investment, and will be a rising demand for EU exports from a strengthening global economy.
Public investment is set to reach its highest level in more than a decade in 2022, which will be driven by the Recovery and Resilience Facility (RRF), the key instrument at the heart of NextGenerationEU.
The unemployment rate in the EU is forecast at 7.6% in 2021 and 7% in 2022. In the euro area, the unemployment rate is forecast at 8.4% in 2021 and 7.8% in 2022. These rates remain higher than pre-crisis levels.
Inflation will vary significantly over the course of 2021. The assumed energy prices and changes in the VAT rates generate noticeable fluctuations in the level of prices compared to the same period 2020.
Inflation in the EU is forecast at 1.9% in 2021 and 1.5% in 2022. For the euro area, inflation is forecast at 1.7% in 2021 and 1.3% in 2022.
The aggregate general government deficit is set to rise by about half a percentage point to 7.5% of GDP in the EU this year and by about three-quarters of a percentage point to 8% of GDP in the euro area. All Member States, except for Denmark and Luxembourg, are forecast to run a deficit of more than 3% of GDP in 2021.
By 2022 the aggregate budget deficit is forecast to halve to just below 4% in both the EU and the euro area.
In the EU the ratio of public debt to GDP is forecasted to peak at 94% this year before decreasing slightly to 93% in 2022. The euro area debt-to-GDP ratio is forecast to follow the same trend, rising to 102% this year and then falling slightly to 101% in 2022.
„The risks surrounding the outlook are high and will remain so as long as the shadow of the COVID-19 pandemic hangs over the economy,” said the EU Commission.