European Commission: GDP’s recovery to pre-crisis level to be faster than expected

• The latest economic forecasts released by the European Commission revealed significant revisions to the scenario for the period 2020 to 2022. While revisions were to be anticipated, what was rather more surprising is that the exit from the crisis (i.e. a recovery to pre-crisis GDP) would be faster than expected. How can this be so when the start of the year continues to be marked by a difficult situation on the health front and that restrictions have been imposed in many European countries that could remain in place for several more weeks.

• Recession not as pronounced as expected in 2020: with growth holding up in H2-20, the recession was not as pronounced as anticipated last autumn, with a contraction in real GDP now put at -6.3% for the European Union (vs. -7.4% in the Autumn forecast) and at -6.8% for the Eurozone (vs. -7.8%).

• 2021 rebound revised downwards: for the European Union, 2021 real GDP growth is now forecast at +3.7% (down from +4.1% in the Autumn forecast). Real GDP growth for the Eurozone has also been lowered by 0.4pp, down to +3.8 % (down from +4.2%). According to the European Commission, a further contraction of the Eurozone’s GDP is expected in Q1-21, but growth is then expected to resume in the spring and gather momentum in the summer, fuelled by the progress in the vaccination campaigns, the relaxation of confinement measures (gradual from Q2-21, more pronounced in H2-21), and the improvement in the global economic outlook.

• Stronger growth momentum in 2022: forecasts for next year have come in for significant upward revisions, largely offsetting the shortfall in growth in 2021. The latest 2022 forecasts are for real GDP growth of +3.9% for the European Union and +3.8% for the Eurozone. This would see the European Union and Eurozone economies recover back to their pre-crisis levels earlier than anticipated in the Autumn forecast, mainly on account of the stronger momentum now expected in H2-21 and then in 2022.