Despite the response both at national and EU level, the EU economy will experience a deep recession this year as a result of the coronavirus. Its impact on economic activity was already considerable in the first quarter of 2020 due to the containment measures that the majority of the Member States began to apply in March, but with a much longer period of paralysis and confinement in the second quarter of 2020 , it is calculated that economic production will have contracted more than in the first quarter.
Specifically, the economic forecasts for the summer of 2020 indicate that the economy of the euro area will contract 8.7% in 2020, to grow again 6.1% in 2021 and the EU economy will contract 8, 3% in 2020 to grow around 5.8% in 2021. Therefore, the contraction in 2020 is expected to be
significantly higher than the 7.7% forecast for the euro area and 7.4% for the EU as a whole, as indicated by the economic forecasts for spring 2020.
The return to growth in 2021 will also be slightly less robust than expected in the spring. However, the first data for May and June
They indicate that the worst could have happened, since they expect the recovery to consolidate in the second half of 2020, even if it is incomplete and uneven in the different EEMMs.
Regarding Spain, despite all the indicators showing that activity is recovering rapidly, as restrictions are lifting, the impact of confinement during the first half of 2020 seems to have turned out worse than expected in the spring forecast. Therefore, the EC estimates that the Spanish economy will contract 10.9% this year (according to forecasts, all the economies of the single currency will close with a contraction of at least 6% in 2020). However, it points to an intense recovery of 7.1% in 2021, one tenth higher than expected in the latest forecasts, ranking among the three strongest economies as of January in the recovery, along with France or Slovenia.
The outlook for inflation has changed little since the last forecasts, despite significant changes in the underlying forces that determine prices. Although oil prices in food have risen more than expected, its effect is expected to be offset by the worse economic outlook and the effect of VAT reductions and other measures taken in some MSEs. Inflation is currently forecast in the euro area, as measured by the harmonized consumer price index (HICP), of 0.3% in 2020 and 1.1% in 2021. In the EU, inflation forecasts point to to 0.6% in 2020 and 1.3% in 2021.
The risks surrounding this forecast are of exceptional magnitude, since the scale and duration of the pandemic of future containment measures are unknown, and point fundamentally to the downside, based on the assumption that containment measures will continue to decrease and that there will not be a second wave of infections.
There are considerable risks that, in the long term, the labor market will suffer more than expected and that liquidity difficulties will become solvency problems for many companies. There are risks to the stability of financial markets and the danger that the EEMMs will not sufficiently coordinate national political responses. The lack of an agreement on the future trade relationship between the United Kingdom and the EU could lead to lower growth, especially in the case of the United Kingdom (given that future relations between the EU and the United Kingdom are not yet clear. , the forecasts for 2021 are based on a
purely technical hypothesis of the status quo). Likewise, protectionist policies and excessive distancing from world production chains could negatively affect trade and the world economy.
However, it should be noted that there are upside risks, such as the rapid availability of a coronavirus vaccine. An agreement on the EC proposal on the new recovery instrument of the European Union is expected to be reached soon, which is not included in this forecast but will be considered
an upward risk. Furthermore, a better-than-expected recovery cannot be excluded, particularly if the epidemiological situation allows for a faster than expected lifting of restrictions.
The next economic forecasts for the EC will be those for the autumn of 2020, whose publication is scheduled for November of this year.
Source: Aeball
