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A feeble recovery staged over the summer months when the pandemic was in a brief lull in Europe has been disrupted by the second onslaught gripping the region, European Commission forecasts said Thursday, adding that the bloc will not return to pre-pandemic economic output before 2022 at the earliest.
The autumn forecast, the latest installment of the commission’s quarterly health check of the economies of the 27 E.U. countries, showed that the second wave of Covid-19 infections, which have forced a growing number of countries to go back into full or partial lockdowns in recent weeks, will weaken the economic recovery of the region in 2021. The forecast said that the bloc’s economies will shrink on average by 7.4 percent this year; the core of the region, the euro area of 18 nations that share the common currency, will see a 7.8 percent contraction, the commission said.
“This forecast comes as a second wave of the pandemic is unleashing yet more uncertainty and dashing our hopes for a quick rebound,” said Valdis Dombrovskis, the European Commission executive vice president.
The Spanish economy will be worst hit, the forecasts said, set to shrink by 12.4 percent, followed by Italy, which is predicted to lose 9.9 percent of its economic output this year. France, the bloc’s second-largest economy, will contract by 9.4 percent, whereas the leader, Germany, will see a more moderate 5.4-percent contraction.
Prognosticating in this environment is treacherous, the report authors warned: “Uncertainties and risks surrounding the Autumn 2020 Economic Forecast remain exceptionally large.”
A worsening pandemic and longer-term, deeper scars to the economy after this crisis, such as an avalanche of bankruptcies and high unemployment, could also set the recovery back more than is currently foreseen, the report warned. The specter of double-digit unemployment is returning to the European south, especially set to hurt Greece (with a jobless rate of 18 percent) and Spain (16.7 percent), the forecast showed.
But perhaps one of the more lasting impacts of the financial crisis unleashed by the pandemic will be spiraling debt burdens across the board in E.U. countries.
In the euro area, aggregate government debt will jump to more than 100 percent of economic output in 2022, from 85.9 percent. The European Union has issued joint bonds in recent weeks, at a scale never before attempted, to begin funding some of its joint social and economic support measures for its members. And the European Central Bank has been providing ample liquidity to members that need funding to support prolonged furlough plans and other economic recovery measures.
A landmark stimulus package, a 750 billion euro, or $883 billion, set of grants and loans to help lift economies, known as NextGenerationEU, is stuck in negotiations and will not come online until next year.
Article source: https://www.nytimes.com/live/2020/11/05/business/us-economy-coronavirus