Corona crisis: EU Commission expects slump of -8.7% – Italy sees dramatic decline

Due to the Corona crisis, the economy within the Eurozone will decline by -8.7%. This is the latest forecast of the EU Commission. This means that the EU Commission is even more sceptical about the development than in its forecast from the spring, when the forecast was -7.7%. However, the outlook for the recovery that will follow the corona crisis (unless there is a second wave, see below) is somewhat more optimistic. This is the wording of the EU Commission’s forecast:

The EU economy will experience a deep recession this year due to the coronavirus pandemic, despite the swift and comprehensive policy response at both EU and national levels. Because the lifting of lockdown measures is proceeding at a more gradual pace than assumed in our Spring Forecast, the impact on economic activity in 2020 will be more significant than anticipated.

The Summer 2020 Economic Forecast projects that the euro area economy will contract by 8.7% in 2020 and grow by 6.1% in 2021. The EU economy is forecast to contract by 8.3% in 2020 and grow by 5.8% in 2021. The contraction in 2020 is, therefore, projected to be significantly greater than the 7.7% projected for the euro area and 7.4% for the EU as a whole in the Spring Forecast. Growth in 2021 will also be slightly less robust than projected in the spring.

V-recovery?

So far, the EU Commission does not exactly see a “V-recovery“. A recovery following the Corona crisis that has already been priced in by the stock markets. However, it nevertheless assumes that the low point has already been passed:

Early data for May and June suggest that the worst may have passed. The recovery is expected to gain traction in the second half of the year. Albeit remaining incomplete and uneven across Member States.

The shock to the EU economy is symmetric in that the pandemic has hit all Member States. However, both the drop in output in 2020 and the strength of the rebound in 2021 are set to differ markedly. The differences in the scale of the impact of the pandemic and the strength of recoveries across Member States are now forecast to be still more pronounced than expected in the Spring Forecast.

However, all these forecasts are based on the assumption that there will be no second wave of corona infections:

The scale and duration of the pandemic, and of possibly necessary future lockdown measures, remain essentially unknown. The forecast assumes that lockdown measures will continue to ease and there will not be a ‘second wave’ of infections. There are considerable risks that the labor market could suffer more long-term scars than expected. And that liquidity difficulties could turn into solvency problems for many companies.

Forecast for Germany

It is noticeable that the development in Germany is now even being assessed slightly less negatively by the EU Commission. (Against the trend!) Compared to the spring forecast. Italy, on the other hand, will probably be hit hardest by the corona crisis with -11.2%:

Die Prognose der EU-Kommission für die Wirtchaften der vercshiedenden Länder in der Coronakrise

All of this is likely to add to the centrifugal forces in the Eurozone. The trend shows something that seems to apply to the corona crisis in general. The weak (here: countries) are suffering much more than the strong. Whether and how long this divergence in the prosperity of countries and societies can be bridged remains to be seen.

Die Coronakrise verstärkt ie Fliehkräfte in der Eurozone
Please follow and like us:

Be the first to comment

Leave a Reply

Your email address will not be published.


*