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European Commission Revises Eurozone’s GDP Forecast For 2021, 2022 - Richard Oyamo reports

Thursday, 13 May 2021 -

The Eurozone economy is set to rebound more strongly from the coronavirus pandemic slump for the next two years than previously projected. That’s according to a Wednesday 12th, 2021 report by the EU economic commissioner, Gentiloni, (Brussels).

Based on previous projections in February by economic forecasters, the average EU growth rate (including the 19 nations that use the Euro currency) was anticipated at 3.8% for the remainder of this year and next year. However, the success of vaccinations in the Euro area has surpassed expectations, which has subsequently seen the European Commission revise the GDP projections upwards from 3.8% to 4.3% this year and 4.4% for 2022.

While the Commission acknowledged that the recovery rate would differ from one country to another, they pointed to an anticipated swift economic upturn that would be driven by an increase in business investment, private consumption, and the increasing demand for Eurozone exports from the equally strengthening world economy, even as vaccination rates soar and infections rates drop. Further, the commission reiterated that the EU’s borrowing limits from International Monetary Fund should be suspended for the projected period to avoid jeopardizing the path to economic recovery.

Regaining The Status Quo

The World's largest lender of last resort, IMF, had earlier predicted the Eurozone to rebound the fastest than Asia, the US, and Africa, but the US looks to be ahead in the path to recovery. Nevertheless, this forecast by the EU economic commissioner harmonizes with the 4.4% expected GDP growth announced in April by the IMF. Further, this forecast implies that the economies of Eurozone member states should return to pre-pandemic levels by the end of the 2022 fiscal year.

In the report, the commission projected that the UK would recover much slower than say, Germany (Q4 2021), Spain (Q4 2022), Italy (Q4 2022), and France (Q1 2022). Germany is expected to gain full economic recovery the fastest, seeing as to how it was arguably the least impacted by the pandemic of all the Eurozone’s most industrialized economies.

Inflation and Other Projected Bounce Back Indicators

The EU government's borrowing during the pandemic has negatively impacted their finances, which has increased the region's aggregate public debt from 100% of the GDP in 2020 to 103% of GDP in 2021. But the suspension of borrowing limits for the 2022 fiscal year is anticipated to help Eurozone economies rebound faster.

Moreover, the market expectation, which has been at all-time lows since the eve of the pandemic, is expected to surpass estimates. The knock-on effect on the GDP growth will be driven by inflation that should accelerate to 1.7% this year and further be constrained closer to equilibrium at 1.3% in 2022. This, coupled with the anticipated increase in household consumption and private investment, would boost the Eurozone GDP via higher interest rates.

What’s Next?

Overall, the economic spillovers, as analysed by the European Commission and the European Central Bank, are expected to boost the Eurozone GDP by 0.3% in 2021 and 0.2% in 2022. However, the damage on the GDP had the pandemic never struck cannot be quashed entirely.

(Editor: Richard Oyamo)


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