Brussels slashes EU growth forecasts
September 2, 2020 - The eurozone economy is forecast to contract by 8.7% in 2020 -- a steeper drop than the 7.7% previously forecast -- before gross domestic product bounces back in 2021.
To counter the spread of coronavirus, Brussels introduced measures including furlough schemes, subsidies and other forms of welfare spending across the eurozone. But these schemes are financed through sovereign debt, loans from EU institutions and deepening fiscal deficits.
A string of indicators suggests that the euro area economy has operated at between 25 per cent to 30 per cent below its capacity during the period of the strictest confinement, according to the European Commission’s European Economic Forecast.
In its first updated economic projections since early May, Brussels said EU gross domestic product would shrink 8.3 per cent this year -- a steeper drop than the 7.4 per cent previously forecast. For the euro area, GDP will contract by 8.7 per cent.
“The economic impact of the lockdown is more severe than we initially expected,” said Valdis Dombrovskis, the EU commission’s executive vice-president in charge of economic policy.
The forecast also warned that risks were “exceptionally high and mainly to the downside”; it assumed that “no major second wave of infections would trigger new generalised restrictions.”
The commission lowered its forecast of an economic rebound in 2021 to 5.8 per cent, down from 6.1 per cent.
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