On Tuesday, the European Commission which is the European Union’s (EU) executive arm made the decision to slash its 2020 and 2021 projections. It is not surprising as the coronavirus pandemic created a lot of problems for all members of the union. According to the latest information, the institution expects the 27-member region to contract by 8.3% in 2020. Interestingly, the commission expects the region’s economy to grow by 5.8% in 2021.
As a reminder, in May the European Commission estimated a 7.4% contraction for the total gross domestic product (GDP) across the region in 2020. Moreover, the Brussels-based institution expected that economy would grow by 6.1% in 2021.
Unfortunately, the economic impact of the lockdown is more severe than initially expected. There are certain risk factors associated with the pandemic. For example, another wave of infections. It is worth mentioning that, the outlook has worsened over the last two months, irrespective of the steps most European countries have taken to reopen their economies.
Interestingly, the commission expects the economic activity to increase in the second half of the year. However, it will remain incomplete as well as uneven due to the social-distancing measures.
European Commission and the Italian economy
Based on the latest forecasts, the Italian economy will contract the most among the EU. According to the European Commission, the local economy will contract by 11.2% in 2020.
Italy started to remove strict restrictions in May. However, it will take time to get tourism and other consumer-related services back on track. Despite all challenges, the European Commission forecast a rebound of 6.1% in Italian GDP for 2021.
However, Italy is not the only country that is struggling to deal with the economic impact of the coronavirus pandemic. The commission also expects France as well as Spain to face significant economic contractions in 2020. The EU’s executive arm now projects a drop of 10.6% in the case of France and 10.9% in the case of Spain. For example, in May the European Commission estimated a fall of 8.2% and 9.4% in GDP.
Last month, the International Monetary Fund (IMF) said that the euro area would contract by more than 10% in 2020. Based on the information provided by the IMF, France Italy and Spain could contract by about 12% this year.
The only country in the euro area that benefited from the latest data is Germany. The commission will now contract by 6.3% in 2020 instead of 6.5%, thanks to stimulus measures announced by the German government in June.