BRUSSELS – The European Union economy is set to bounce back strongly this year after the deep coronavirus recession and member states are forecast to regain the ground lost by the end of next year.
In its latest forecast Wednesday, the EU’s executive commission significantly upgraded its predictions for economic growth.
It said that growth in the 27-nation bloc is predicted to expand by 4.2% this year, a significant uptick from a February prediction of 3.7%.
"Recovery is no longer a mirage. It is under way," said EU Commissioner Paolo Gentiloni. “After a weak start to the year, we project strong growth in both 2021 and 2022.”
The Commission highlighted the fact that the vaccination drive across the bloc is starting to reach cruising speed and is a driving factor for a better outlook this year.
For next year, when growth is now predicted to move to 4.4% instead of the February prediction of 3.9 %, the member states will also start to see the impact of the first payments of the bloc's massive 750 billion euro ($910 billion) recovery fund.
“The EU economy is set to grow robustly this year and next,” said Gentiloni. “Today, for the first time since the pandemic hit, we see some optimism prevailing over uncertainty,” he said.
Last year, the economy took a tumble of 6.3%, the worst in EU history, as the pandemic left a trail of hundreds of thousands of dead in the bloc of 450 million. And when the United States and Britain took a flying start with their vaccination programs, the EU stuttered out of the blocks.
Only now is the EU catching up and the drive is allowing nations to end some of the drastic restrictions which have hurt the economy so badly.
Fears of inflation, so long dormant, have risen in recent weeks and Gentiloni blamed party a rise in energy prices, a recalibration of inflation statistics, a reversal of VAT cuts and the introduction of a carbon tax in Germany. He said the surge could affect the economy this year before tapering off next year.
He said that inflation in the EU is expected to increase from 0.7% in 2020 to 1.9% this year and to moderate to 1.5% in 2022.
Overall, the EU and its 27 member nations together have recovery measures in the works to emerge from the pandemic totaling around 4.8 trillion euros ($5.85 trillion) and debt is peaking this year.
Government deficit is to spike to 7.5% of GDP in the EU, compared to 0.5% two years ago. All EU nations except Denmark and Luxembourg are on track to have deficits exceeding 3% this year.
And Gentiloni said it was OK to keep spending to get the economy back on its feet and on to a full recovery.
“We must avoid mistakes that could undermine it, namely a premature withdrawal of policy support,” Gentiloni said.