Severe risks to the economic outlook, tilted to the downside — EU Commission

Marco Green
July 7, 2020

The new forecasts see the eurozone economy bouncing back by 6.1 percent in 2021, still leaving the region worse off than before the countries were forced to implement lockdowns in an attempt to contain the spread of COVID-19.

The Commisssion notes that the revised prediction is based on lockdown measures lifting at a more gradual pace than it has assumed in the spring forecast, causing a "more significant" impact on economic activity than anticipated.

Brussels expects that the euro-area economy will shrink by 8.7% this year, versus the 7.7% GDP contraction it forecast earlier this year.

It said that fiscal stimulus released in the second quarter to support households and businesses is expected to have dampened the decline in real GDP.

Denmark's economy is forecast to be the second best performer as the EU emerges from the Coronavirus Crisis, according to the European Commission.

The Commission also said that the country's economic outlook remains affected by specific uncertainty around Brexit, potential changes in the worldwide taxation environment and the activities of multinationals registered here.

"We continue to navigate in stormy waters and face many risks, including another major wave of infections", said Commission Vice-President Valdis Dombrovskis in a statement.

He added that the "forecast is a powerful illustration of why we need a deal on our ambitious recovery package".

"This is why it is so important to reach a swift agreement on the recovery plan proposed by the Commission - to inject both new confidence and new financing into our economies at this critical time", said Paolo Gentiloni, European commissioner for the economy. A "hard Brexit" scenario with no agreement on the future trading relationship with the United Kingdom could also result in lower growth, the Commission said.

The main possible upside to the scenario was an early availability of a vaccine against the novel coronavirus, but also that the Next Generation EU package, not included in the current baseline because it is yet to be adopted, "could give a sizable impulse to the EU economy, particularly in 2021", the report said.

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