Euro zone growth in 2021 to rebound less than expected

Press conference by economy chief Gentiloni on the bloc's winter economic forecast
European Commissioner for Economy Paolo Gentiloni gives a press conference on the Winter (Interim) Economic Forecast, at the EU headquarters in Brussels, Belgium February 11, 2021. Kenzo Tribouillard /Pool via REUTERS

February 11, 2021

By Jan Strupczewski

BRUSSELS (Reuters) – The euro zone economy will rebound less than earlier expected from the coronavirus slump this year as a second wave of the pandemic put economies in new lockdowns, the European Commission said, adding 2022 growth will be stronger than earlier thought.

The Commission forecast economic growth in 19 countries sharing the euro would be 3.8% this year and the same in 2022, rallying from a 6.8% drop in 2020. Last November, the Commission forecast 2021 euro zone growth at 4.2% and 2022 growth at 3.0% against a 7.8% recession in 2020.

“The near-term outlook for the European economy looks weaker than expected last autumn, as the pandemic has tightened its grip on the continent,” the EU executive arm said in an interim economic forecast for the 27-nation bloc.

“The European economy is thus expected to have ended 2020 and started the new year on a weak footing. However, light has now appeared at the end of the tunnel. As vaccination campaigns gain momentum and the pressure on health systems to subside, containment measures are set to relax gradually,” it said.

With the lockdowns still in place, the euro zone economy will contract again in the first quarter of 2021 after shrinking in the last three months of 2020.

But activity is to pick-up moderately in the second quarter and more vigorously in the third, led by private consumption with additional support from global trade, as the vaccination campaign accelerates, the Commission said.

France and Spain will see the strongest growth rallies this year of 5.5% and 5.6% respectively, having suffered some of the deepest contractions last year, and will continue to be among the highest growth countries also in 2022.

Consumer price growth is to accelerate closer to the European Central Bank’s goal of below, but close to 2% over the medium term, the Commission said. It forecast inflation at 1.4% in 2021 and 1.3% in 2022, up from 0.3% in 2020.

“These projections are subject to significant uncertainty and elevated risks, predominately linked to the evolution of the pandemic and the success of vaccination campaigns,” the Commission said.

“There is also a risk of deeper scars in the fabric of the European economy and society inflicted by the protracted crisis, through bankruptcies, long-term unemployment, and higher inequalities,” it said.

(Reporting by Jan Strupczewski)