The global coronavirus pandemic is naturally proving to be a huge shock for global and EU economies, with massively severe socio-economic consequences. As a result the EU economy will experience a recession of historic proportions this year.
The Spring 2020 Economic Forecast projects that the euro area economy will contract by a record 7¾% in 2020 and grow by 6¼% in 2021. The EU economy is forecast to contract by 7½% in 2020 and grow by around 6% in 2021.
Growth projections for the EU and euro area have been revised down by around nine percentage points compared to the Autumn 2019 Economic Forecast.
Each Member State’s economic recovery will depend not only on the evolution of the pandemic in that country, but also on the structure of their economies and their capacity to respond with stabilising policies.
Given the interdependence of EU economies, the dynamics of the recovery in each Member State will also affect the strength of the recovery of other Member States.
Paolo Gentiloni, European Commissioner for the Economy, said:“Europe is experiencing an economic shock without precedent since the Great Depression. Both the depth of the recession and the strength of recovery will be uneven, conditioned by the speed at which lockdowns can be lifted, the importance of services like tourism in each economy and by each country’s financial resources. Such divergence poses a threat to the single market and the euro area – yet it can be mitigated through decisive, joint European action. We must rise to this challenge.”
The coronavirus pandemic has severely affected consumer spending, industrial output, investment, trade, capital flows and supply chains. The expected progressive easing of containment measures should set the stage for a recovery.
However, the EU economy is not expected to have fully made up for this year’s losses by the end of 2021. Investment will remain subdued and the labour market will not have completely recovered.
The continued effectiveness of EU and national policy measures to respond to the crisis will be crucial to limit the economic damage and facilitate a swift, robust recovery to set the economies on the path of sustainable and inclusive growth.
Unemployment is set to increase, though policy measures should limit the rise. While short-time work schemes, wage subsidies and support for businesses should help to limit job losses, the coronavirus pandemic will have a severe impact on the labour market.
The unemployment rate in the euro area is forecast to rise from 7.5% in 2019 to 9½% in 2020 before declining again to 8½% in 2021. In the EU, the unemployment rate is forecast to rise from 6.7% in 2019 to 9% in 2020 and then fall to around 8% in 2021.
Some Member States will see more significant increases in unemployment than others. Those with a high proportion of workers on short-term contracts and those where a large proportion of the workforce depend on tourism are particularly vulnerable. Young people entering the workforce at this time will also find it harder to secure their first job.