No rapid recovery after historic economic crisis

No rapid recovery after historic economic crisis

Corona economic crisis will last longer than expected, according to new eu forecast. After this year’s historic crash, the european union economy is expected to grow again from 2021, but comparatively slowly.

Even in 2022, the economy will not return to its former strong level for the most part. The "V" – a sharp downturn and an equally sharp upturn – has never really been relied upon, said EU economic commissioner paolo gentiloni on thursday. "Now we know for sure it’s not coming."

The forecast figures for 2020 are slightly better than in the summer after a strong third quarter, and germany is in a slightly better position than other countries. Nevertheless, the recession is unprecedented.

According to these figures, economic output in the 19 countries of the euro zone will fall by an average of 7.8 percent this year, and by 7.4 percent in the 27 countries of the european union as a whole. Growth of 4.2 percent is forecast for the 19 eurozone countries and 4.1 percent for the EU-27 next year, followed by 3 percent each in 2022.

According to this forecast, germany will come out of 2020 with a minus of 5.6 percent better than the average, but the commission sets lower growth rates of 3.5 percent next year and 2.6 percent the year after that. The figures for this year are devastating in spain (minus 12.4 percent), italy (minus 9.9 percent) and france (minus 9.4 percent). In part, a faster recovery is assumed in the crisis countries. The reason for both is, among other things, the strong dependence on tourism.

In july, the brussels authorities had still assumed that economic output in the euro zone would shrink by 8.7 percent and in the eu as a whole by 8.3 percent. After a slump of more than 11 percent due to the pandemic lockdown in the spring, however, the economy grew by more than 12 percent in the third quarter, both in the euro zone and in the EU as a whole.

Now gentiloni pointed to new risks due to the second corona wave and the new pandemic requirements. As a result, the expected economic recovery next year will be significantly weaker than hoped for. In july, the commission had forecast 6.1 percent growth for the euro zone in 2021 and 5.8 percent for the EU as a whole. The economic recovery is now interrupted and will remain incomplete for the time being, gentiloni said.

Especially for the european labor market, the big end is yet to come according to this estimate. Unprecedented over-stretching and short-time working had dampened the rise in unemployment, but it will continue to rise: in the eurozone from 7.5 percent in 2019 and 8.3 percent this year to as high as 9.4 percent in 2021. For 2022, a rate of 8.9 percent is still assumed for the countries of the common currency.

Budget deficits and public debt are growing rapidly due to the enormous expenditures in the fight against the crisis. Before the pandemic, the average eurozone deficit ratio in 2019 was still 0.6 percent of gross domestic product – this year it will be 8.8 percent, next year 6.4 percent and in 2022 still 4.7 percent. Debt ratio grows to 102 percent of economic output in 2020, gentiloni says.

Normally, EU countries are not allowed to have a budget deficit of more than 3 percent and a debt ratio of more than 60 percent. But these rules of the stability and growth pact are suspended because of the crisis, at least until the end of 2021. "That doesn’t mean it will end in late 2021," the commissioner said.

In his opinion, the agreed 750-billion-euro program can help against the crisis, but like the EU budget framework, it is still not quite finalized. A quick settlement is crucial, gentiloni said.

Green european politician sven giegold sees an even more important crisis fire department: the european central bank, which took countermeasures shortly after the outbreak of the pandemic with a gigantic bond-buying program. "As during the euro crisis, the ECB is also a stabilizing factor in the corona crisis," giegold told the deutsche presse agency. "The stability of the euro should prove the ECB’s notorious critics wrong."

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