European Commission upgrades EU growth outlook for 2021 & 2022

Growth rates, however, will continue to vary across the EU, but "all Member States should see their economies return to pre-crisis levels by the end of 2022," the Commission said in its forecast.

The Spring 2021 Economic Forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices, with a cut-off date of April 28, 2021. For all other incoming data, including assumptions about government policies, the forecast takes into consideration information up until and including April 30.

The EU economy contracted by 6.1 per cent and the euro area economy by 6.6 per cent in 2020. Although in general, businesses and consumers have adapted to cope better with containment measures, some sectors – such as tourism and in-person services – continue to suffer, the Commission said.

The rebound in Europe's economy that began last summer stalled in the fourth quarter of 2020 and in the first quarter of 2021, as fresh public health measures were introduced to contain the rise in the number of COVID-19 cases. However, the EU and euro area economies are expected to rebound strongly as vaccination rates increase and restrictions are eased. This growth will be driven by private consumption, investment, and a rising demand for EU exports from a strengthening global economy.

Public investment, as a proportion of GDP, is set to reach its highest level in more than a decade in 2022. This will be driven by the Recovery and Resilience Facility (RRF), the key instrument at the heart of NextGenerationEU.

Adding a note of caution, the forecast said, "The risks surrounding the outlook are high and will remain so as long as the shadow of the COVID-19 pandemic hangs over the economy."

On the other hand, stronger global growth, particularly in the US, could have a more positive impact on the European economy than expected. Stronger US growth, however, could push up US sovereign bond yields, which could cause disorderly adjustments in financial markets that would hit highly indebted emerging market economies with high foreign currency debts particularly hard.

“While we are not yet out of the woods, Europe's economic prospects are looking a lot brighter. As vaccination rates rise, restrictions ease and people's lives slowly return to normal, we have upgraded forecasts for the EU and euro area economies for this year and next. The Recovery and Resilience Facility will help the recovery and will be a real game changer in 2022, when it will ramp up public investments to the highest level in over a decade. Much hard work still lies ahead, and many risks will hang over us as long as the pandemic does.  Until we reach solid ground, we will continue to do all it takes to protect people and keep businesses afloat,” Valdis Dombrovskis, executive vice-president for an Economy that Works for People, said.

Fibre2Fashion News Desk (RKS)