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Commission lifts 2021 growth outlook but warns of headwinds
The European Commission lifted its growth projection for the bloc on Thursday, while warning of mounting headwinds as the fourth wave of the coronavirus pandemic hits the continent and global supply bottlenecks add to economic woes.
The Commission raised its growth forecasts for the eurozone to 5.0 percent for this year, up from 4.3 percent seen in the spring, while trimming the 2022 forecast to 4.3 percent from 4.4 percent. The Commission’s first growth projection for 2023 pegs growth at 2.4 percent.
It issued the same projections for the wider EU as it did for the eurozone, for both this year and next. In 2023, the Commission expects the EU economy to expand by 2.5 percent.
“The European economy is moving from recovery to expansion,” said Economy Commissioner Paolo Gentiloni. But he also pointed to three key threats: “A marked increase in COVID cases, most acute in areas where vaccinations are relatively low; rising inflation, driven largely by a spike in energy prices; and supply-chain disruptions that are weighing on numerous sectors.”
As for inflation, the Commission raised its forecast for the eurozone to 2.4 percent from 1.7 percent in 2021 and to 2.2 percent from 1.3 percent in 2022. The first forecast for 2023 sees inflation at 1.4 percent, which lies well below the European Central Bank’s 2 percent target.
However, the Commission cautioned that price pressures may turn out higher than forecast if supply constraints persist and wage-increase demands exceed productivity and are passed on to consumer prices. “We also need to closely monitor inflation and adjust our policies if needed,” said Commission Executive Vice President Valdis Dombrovskis.
Improved growth prospects point to lower deficits in 2021 than those expected last spring, the Commission noted. After reaching 6.9 percent of GDP in 2020, the aggregate deficit in the EU should narrow to 6.6 percent in 2021 before dropping to around 3.6 percent in 2022 and 2.3 percent in 2023.
The debt-to-GDP ratio, meanwhile, is seen reaching 99 percent in the eurozone and 92 percent in the EU this year. It’s expected to decline in 2022 to 97 percent in the eurozone and 89 percent in the EU in 2023.
