Eurozone recession ‘will be deeper than forecast’

The eurozone economy will sink deeper into recession than previously thought due to the effects of the pandemic, the European Commission (EC) has said.

The bloc will contract a record 8.7% this year before growing 6.1% in 2021. It compares with the EC’s May forecast of a 7.7% slump and 6.3% growth.

France, Italy and Spain will struggle the most, the EC said.

Its revised forecast comes amid concerns about the US economy after a surge in infections.

This has prompted several states to delay or reverse lifting restrictions.

Commission Valdis Dombrovskis said in a statement: “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.”

The Commission revised its previous forecasts because lifting coronavirus lockdown measures in eurozone countries was taking longer than it had initially thought.

Earlier growth forecasts for France, Italy and Spain were cut after they were hit hard by the pandemic, and the EC now expects downturns higher than 10% this year in each nation.

By contrast, Germany, which had fewer Covid-19 deaths, will have a 6.3% contraction, less pronounced than May’s forecast of 6.5%.

Economic drag

The EC’s latest forecast assumes there won’t be a second wave of infections leading to renewed lockdown restrictions. However, it does assume that social distancing measures persist, and that monetary and fiscal policy measures support the recovery.

The main risks include a potential wave of new infections, more permanent scars from the crisis, including unemployment and corporate insolvencies, and the absence of an EU-UK Brexit trade deal.

It said that a failure to agree a Brexit trade deal could result in lower growth, especially for the UK.

“At the global level, the still rising rate of infections, particularly in the US and emerging markets, has deteriorated the global outlook and is expected to act as a drag on the European economy,” the report added.

Although the US has put in place “bold” fiscal and monetary policies, it said, “the increasing rate of new US infections is expected to weigh on consumer and business confidence”.

Some reopening plans have been put on hold and restrictions placed on the bars, restaurants and other hospitality industry companies that helped the US economy add 4.8 million jobs in June.

Source: BBC

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