EU forecasts ‘recession of historic proportions’ this year

The European Union is bracing
itself for a “recession of historic
proportions” this year, with the
coronavirus pandemic expected
to cause a 7.4 per cent drop in
economic output.
“Europe is experiencing an
economic shock without
precedent since the Great
Depression,’’ the EU’s economy
chief Paolo Gentiloni said on
Wednesday.
He warned the sharp downturn
poses a threat to the EU’s single
currency and the single market.
“The situation is not only that
we are in a deep recession,
yes we are, but the situation is
that this deep recession risks to
cause different conditions and
have different consequences
in different member states,”
Gentiloni told Euronews.
The 19-nation Eurozone will
see a record decline of 7.7 per
cent this year, according to the
Commission’s Spring economic
forecast.
Greece, Italy, Spain and Croatia
are all set to see their economies
shrink by more than 9 per cent
in 2020. These are heavily reliant
on tourism, a sector which has
been pummelled by weeks of
nationwide lockdowns and travel
restrictions.

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Even Europe’s economic
powerhouse Germany is set to
see its GDP contract by 6.5 per
cent. The spread of coronavirus
is slowing down in most member
states, which are now gradually
reopening their economies. But
the damage is done.
The pandemic has hurt
consumer spending, industrial
output, investment, international
trade, capital flows and supply
chains. It has also thrown millions
of people out of their jobs.
The unemployment rate across
the 27-nation EU is forecast to
rise from 6.7 per cent in 2019 to
9 per cent in 2020 but then fall
to around 8 per cent in 2021,
according to the Commission.
It cautions, however, that its
outlook is highly uncertain – and
things could be even worse than
it’s projecting right now.
“At this stage, we can only
tentatively map out the scale
and gravity of the coronavirus
shock to our economies,” said
EU Commission Vice-President
Valdis Dombrovskis.

bloc will rebound next year with
economic growth of 6.1 per cent,
but it won’t be quite out of the
woods then.

“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
Commission said in its statement.

It warned the pandemic could
leave “permanent scars” through
bankruptcies and long-term
damage to the labour market.

“Young people entering the
workforce at this time will also find
it harder to secure their first job,” it
said.

Road to recovery: V-shape or Nike
swoosh?
The tourism reliant economies
in Europe’s south are predicted
to have a proportionately higher
bounce back in 2021.

But economists are warning that
with lockdowns in Europe being
lifted at varying levels and paces, a
straightforward recession followed
by recovery – a V shape – might not
be realistic.

“It’s likely that as we open up, we’re
going to get a spike in new cases
and then we might have to lock
down again until the new cases
fall, and then we might open back
up and lock down,” said Megan
Greene, an economist at Harvard
Kennedy School.

“So we might have this kind of
intermittent social distancing and
isolation, in which case you won’t
get a V-shaped recovery; it’ll be
more of a kind of Nike swoosh with
a kind of zig-zag on the back end.
On top of that, even if governments
open up, individuals don’t
necessarily feel comfortable about
going out.”

More than 1.1 million people have
contracted COVID-19 across
Europe and over 137,000 have
died, according to the European
Centre for Disease Prevention and
Control. But testing for the virus
remains limited, meaning the true
scale of the pandemic could be
much bigger.

The EU has already agreed a
€540-billion economic package to
tackle the immediate fallout from
the pandemic. Member states are
currently battling over the structure
of a longer-term fund which could
potentially add up to €1.5 trillion to
the recovery effort

When will it get better?

The Commission forecasts the