The European economy is expected to rebound faster than expected in 2021 and 2022
According to the Summer 2021 Interim Economic Forecast released today, i.e., Wednesday, July 7, 2021, the economy in the European Union (E.U.) and the Euro area is set to expand by 4.8% this year and 4.5% in 2022.
The European economy is expected to rebound faster than previously expected as activity in the first quarter of the year exceeded expectations. The opening up of economies from lockdown will also drive positive growth.
As compared to the previous forecast in the spring, the growth rate for 2021 is significantly higher at +0.6 pps in the E.U. and +0.5 pps. in the Euro area. The real GDP is also expected to return to pre-Coronavirus (COVID-19) levels.
Taking it to twitter, the European Commission tweeted,
The EU economy is set to rebound faster than expected 📈
— European Commission 🇪🇺 (@EU_Commission) July 7, 2021
Summer 2021 #ECForecast:
Economic Growth:
2⃣0⃣2⃣1⃣: 4.8%
2⃣0⃣2⃣2⃣: 4.5%
Inflation:
2⃣0⃣2⃣1⃣: 2.2%
2⃣0⃣2⃣2⃣: 1.6%
Employment is expected to grow in line with economic activity. Read more ↓
The E.U.’s approach towards containing the COVID-19 has also worked in improving the economic outlook for 2021 and 2022. The increasing number of vaccinations and fewer hospitalisations have been a key contributor.
The European Commission’s, Executive Vice-President for an Economy that Works for People – Valdis Dombrovskis tweeted,
GOOD NEWS 💪- Europe’s economy is making a comeback, helped by:
— Valdis Dombrovskis (@VDombrovskis) July 7, 2021
➡️ easing of Covid-19 related restrictions
➡️progress on vaccinations
➡️better consumer demand & more investment
⁰But: we still need to watch for virus variants & risks of inflation #ECForecast pic.twitter.com/zJYojXVgwz
He further tweeted,
Europe is gradually returning to business👍
— Valdis Dombrovskis (@VDombrovskis) July 7, 2021
✅ Our economy is turning the corner: 🇪🇺 recovery package will give us a strong boost over the next months.
But we cannot relax our fight against #COVID19
✅Vaccinations are a top priority 💉
⁰#ECForecast #RRF pic.twitter.com/BzHv0qKH4E
The survey results among consumers and businesses as well as data tracking mobility suggest that a strong rebound in private consumption is already underway. Besides, revival of tourist activity will also boost the economy. These factors are expected to outweigh the adverse impact of the temporary input shortages and rising costs that have impacted the manufacturing sector.
The abundance of more employment opportunities coupled with investments will also help in faster economic recovery. Commencement of inter-E.U. trade will also facilitate quick recovery. Apart from this, the Recovery and Resilience Facility (RRF), which is provided to all the member states will help them to overcome the economic challenges of COVID-19. The total wealth generated by the RRF over the forecast horizon is expected to be approximately 1.2% of the E.U.’s 2019 real GDP.
The rising energy and commodity prices, production bottlenecks due to capacity constraints and the shortage of some input components and raw materials, as well as strong demand both at home and abroad are expected to put upward pressure on consumer prices this year. In 2022, these pressures should moderate gradually as production constraints are resolved and supply and demand converge.
The risks posed by the emergence of COVID-19 mutations underscore the importance of further picking up the pace up of vaccination campaigns. Inflation may turn out higher than forecast, if supply constraints are more persistent and price pressures are passed on to consumer.
The European Commission publishes 2 comprehensive forecasts (spring and autumn) and 2 interim forecasts (winter and summer) each year. The interim forecasts cover annual and quarterly GDP and inflation for the current and following year for all Member States, as well as E.U. and Euro area aggregates.
The forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of June 26, 2021. For all other incoming data, including assumptions about government policies, this forecast takes into consideration information up until and including June 28, 2021.
