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European Commission slashes 2020 economic forecasts

By Abigail Townsend

Date: Tuesday 07 Jul 2020

European Commission slashes 2020 economic forecasts

(Sharecast News) - Brussels has slashed its economic forecasts and warned that the European Union will suffer a deeper-than-expected recession because of the Covid-19 crisis.
The European Commission said the lifting of sweeping lockdown measures across the continent was happening at a slower pace than assumed in its spring forecasts, published in May. It is therefore now predicting that the pandemic's impact on economic activity will be "more significant" than anticipated.

The eurozone is forecast to contract by 8.7% in 2020, compared to an earlier forecast for a decline of 7.7%, and grow by 6.1% in 2021.

The wider EU economy is predicted to contract by 8.3% this year and grow by 5.8% next year; Brussels had initially predicted a decline of 7.4% for 2020.

Within individual countries, GDP in the UK is forecast to decline by 9.7% in 2020. In France it is set to fall by 10.6%, in Spain by 10.9% and in Italy by 11.2%. Germany, the region's biggest economy, is expected to see a 6.3% contraction.

Its outlook for inflation remained unchanged, however, with rising oil and food prices offset by measures taken by member states, such as VAT reductions. Eurozone inflation is forecast to be 0.3% in 2020 and 1.1% in 2021; across the EU, it is predicted to reach 0.6% this year and 1.3% the following year.

Valdis Dombrovskis, executive vice-president for an economy that works for the people, said: "The economic impact of the lockdown is more severe than we initially expected. We continue to navigate in stormy waters and face many risks, including another major wave of infections.

"We can expect a rebound, but we will need to be vigilant about the differing pace of the recovery."

Paolo Gentiloni, commissioner for the economy, said: "This forecast shows the devastating economic effects of [the] pandemic. The policy response across Europe has helped to cushion the blow for our citizens, yet this remains a story of increasing divergence, inequality and insecurity. This is why it is so important to reach a swift agreement on the recovery plan proposed by the Commission."

The Commission has drawn up a €750bn spending plan, dubbed Next Generation EU, which is intended to help the hardest-hit member states through a series of grants. Leaders from the 27 EU countries will discuss the plan at a summit next week.

The Commission said that early data for May and June suggested "the worst had past" and the recovery was expected to gain speed throughout the second half, "albeit remaining incomplete and uneven across member states".

But it added that risks to its latest forecasts were "exceptionally high and mainly to the downside". As well as the scale and duration of the pandemic, Brussels cited trade talks with the UK, noting: "A failure to secure an agreement on the future trading relationship between the UK and the EU could also result in lower growth, particularly for the UK."

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