Winter 2021 economic forecast: a difficult winter, but light at the end of the tunnel – The European Sting – Critical News & Insights on European Politics, Economy, Foreign Affairs, Business & Technology


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This article is presented to you in association with the European Commission.

Europe remains in the grip of the coronavirus pandemic. The upsurge in the number of cases, combined with the appearance of new, more contagious strains of the coronavirus, has forced many Member States to reintroduce or tighten containment measures. At the same time, the launch of vaccination programs across the EU gives cause for cautious optimism.

Economic growth is on the verge of picking up as containment measures loosen

The Winter economic forecast 2021 forecasts growth of the euro area economy of 3.8% in 2021 and 2022. The forecasts predict the growth of the EU economy of 3.7% in 2021 and 3.9% in 2022.

Eurozone and EU economies are expected to reach their pre-crisis production levels earlier than expected in the Fall 2020 Economic Forecast, largely due to the stronger-than-expected growth momentum projected in the second half of 2021 and into 2022.

After strong growth in the third quarter of 2020, economic activity contracted again in the fourth quarter as a second wave of the pandemic triggered new containment measures. With these measures still in place, the EU and eurozone economies are expected to contract in the first quarter of 2021. Economic growth is expected to pick up in the spring and accelerate in the summer as immunization programs progress and as vaccine increases. containment measures are gradually easing. The improving outlook for the global economy should also support the recovery.

The economic impact of the pandemic remains uneven across Member States and the speed of the recovery is also expected to vary widely.

Inflation outlook will remain subdued

Forecasts predict that inflation in the euro area is expected to fall from 0.3% in 2020 to 1.4% in 2021, before slowing slightly to 1.3% in 2022. Inflation forecasts for the euro area and the EU increased slightly for 2021 compared to autumn but is expected to remain moderate overall. The delayed recovery should continue to ease aggregate demand price pressures. In 2021, it will be temporarily reinforced by positive base effects from energy inflation, tax adjustments – especially in Germany – and the impact of pent-up demand hitting some remaining supply constraints. In 2022, as supply adjusts and base effects subside, inflation is expected to moderate again.

High uncertainty and significant risks remain

The risks surrounding the forecast have been more balanced since the fall, although they remain high. They are mainly linked to the evolution of the pandemic and the success of vaccination campaigns.

The positive risks are linked to the possibility that the vaccination process will lead to a faster-than-expected relaxation of containment measures and therefore an earlier and stronger recovery. In addition, NextGenerationEU, the EU’s stimulus instrument whose centerpiece is the Recovery and Resilience Facility (RRF), could fuel stronger-than-expected growth, since most of the funding envisaged has not yet been released. incorporated into this forecast.

In terms of negative risks, the pandemic could prove to be more persistent or more severe in the short term than assumed in this forecast, or there could be delays in the roll-out of vaccination programs. This could delay the easing of containment measures, which in turn would affect the timing and strength of the expected recovery. There is also a risk that the crisis will leave deeper scars on the economic and social fabric of the EU, notably through widespread bankruptcies and job losses. It would also hurt the financial sector, increase long-term unemployment and worsen inequalities.

College members declared:

Valdis Dombrovskis, Executive Vice-President for an economy that works for people said: “Today’s forecast offers real hope in a time of great uncertainty for all of us. The expected strong recovery in growth in the second half of this year shows very clearly that we are turning a corner to overcome this crisis. A strong European response will be crucial to tackle issues such as job losses, the weakening of the business sector and rising inequalities. We will still have a long way to go to contain the wider socio-economic fallout. Our stimulus plan will go a long way to supporting the recovery, supported by the roll-out of vaccination and a likely recovery in global demand. “

Paulo Gentiloni, the commissioner in charge of the economy declared: “Europeans are living through difficult times. We remain in the painful grip of the pandemic, its social and economic consequences too obvious. Yet there is finally light at the end of the tunnel. As more people are vaccinated over the coming months, an easing of containment measures should allow a stronger rebound in the spring and summer. The EU economy is expected to return to pre-pandemic GDP levels in 2022, sooner than expected – although production lost in 2020 is not being recovered as quickly, or at the same rate across our Union. This forecast is subject to multiple risks, linked for example to new variants of COVID-19 and to the global epidemiological situation. On the other hand, the impact of Next Generation EU is expected to give a strong boost to the hardest hit economies in the coming years, which is not yet incorporated in today’s projections.


The winter 2021 economic forecast provides an update to the autumn 2020 economic forecast that was presented in November 2020, focusing on the development of GDP and inflation in all member states of the ‘EU.

This forecast is based on a set of technical assumptions regarding exchange rates, interest rates and commodity prices, with a cut-off date of January 28, 2021. For all other input data, including assumptions concerning government policies, this forecast takes into account information up to and including February 2. Unless policies are credibly announced and specified in sufficient detail, projections assume no policy change.

Importantly, the forecast is based on two important technical assumptions about the pandemic. First, it assumes that after a significant tightening in Q4 2020, containment measures will remain strict in Q1 2021. The forecast assumes that containment measures will then start to ease towards the end of Q2, and then more markedly. in the second half of the year when the most vulnerable and a growing part of the adult population should have been vaccinated. Second, it assumes that containment measures will remain marginal towards the end of 2021, with only targeted sectoral measures still present in 2022.

The integration of NextGenerationEU, including the RRF, into the forecast remains in line with the usual no-change policy assumption and is unchanged from the fall forecast. The forecasts only include measures that have either been adopted or announced in a credible manner and specified in sufficient detail, in particular in national budgets. In practice, this means that the economic projections of only a few Member States take into account certain measures which should be financed under the RRF.

This forecast takes into account the fact that the EU and the UK have concluded a Trade and Cooperation Agreement, which is provisionally in force since January 1, 2021 and which includes a Free Trade Agreement (FTA).

The next forecast from the European Commission will be the spring 2021 economic forecast in May 2021.


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