On 6 May, Commissioner for Economy Paolo Gentiloni presented the Spring 2020 Economic Forecast. The EU is faced with a recession of unprecedented scale. However, there are also grounds for hope.
If last year's Spring Economic Forecast reported cautious growth, the current prognoses for this year are painting a bleak picture: the COVID-19 crisis has abruptly turned the European economy upside down. The Commissioner for Economy, Paolo Gentiloni spoke of an “an economic shock without precedent since the Great Depression.” In 2020, the European economy will shrink by 7.4 %; the eurozone is set out for a decline of 7.7 %.
Not all Member States are equally affected
The economic shock affects all Member States, however, not to the same extent. The worst affected countries are those which have been most impacted by the pandemic. The Italian economy will probably shrink by 9.5 %; the Spanish by 9.4 %. At minus 9.7 %, Greece is at the top of the table. If the 2019 Autumn Forecast still predicted an estimated economic growth of 1.6 % for Austria, the Commission now projects a downturn of 5.5 % for 2020. However, Austria will experience the third-lowest drop, only Poland (4.3%) and Luxembourg (5,4%) will be better off.
Prospects for the labour market “completely different” than projected
Without a doubt, the short-time work schemes, which had been speedily implemented in many Member States, as well as the European short-time work instrument SURE, which will come into force on 1 June and fast-track aid for the self-employed have prevented an even worse situation. Nevertheless, the previously growing employment figures throughout Europe are put to a halt. Compared to the previous year, unemployment will probably increase by 2.3 % in 2020. Accordingly, this year’s unemployment rate in the EU would be 9 %. In countries with a strong tourism sector and/or many employees with fixed-term short-time contracts, unemployment will be even higher. Young people seeking to enter the labour market are also particularly affected. Gentiloni also referred to the huge drop in working hours, caused by physical distancing and lockdown measures. Even though unemployment in Austria will also rise to 5.8 % in 2020, the Commission nevertheless assumes a slow recovery for the second half of 2020. The forecast for 2021 is an unemployment rate of just under 5 % (4.5 % in 2019). According to the Commission, the Austrian short-time work model has prevented an even worse extent of the crisis.
National debt on the increase
The measures implemented to soften the crisis, whether short-time work, fast-track aid or loans, cost money. Due to the COVID-19 crisis, States have to take out vast loans, even though their income, among other generated by corporate or income taxes, is falling. In Austria, the budgetary impacts of COVID-19 crisis measures amount to EUR 15 billion, i.e. 4 % of GDP. In 2020, the Austrian national debt increases by circa 8 % to almost 79 % of GDP. The expectation at EU level is that the aggregate fiscal deficit will rise from 0.6 % of GDP in 2019 to circa 8.5 % in 2020 in both euro-area and EU. For 2021, a decrease of the currently necessary deficits back to 3.5 % is projected.
Cautious hope for recovery
For 2021, the Commission expects an economic growth in the EU of around of 6 %. In accordance to the different extent of the crisis in the Member States, different recovery potentials can be identified. A key to success would be the extent and effectiveness of political support measures. According to forecasts, only Austria, Germany, Poland, Croatia, and Slovakia might be able to end 2021 at the same economic level as the last quarter of 2019. In contrast, Italy, the Netherlands, and Spain would miss this target by 2 %. This would further aggravate already existing economic imbalances between the Member States.
Gentiloni conceded upon request that these figures would represent a rather optimistic version, referring to a so-called baseline scenario. This scenario assumes the gradual relaxation of the lockdown measures as of May. To which extent this scenario will be accurate depends above all on the successful combating and containing of the Coronavirus. Apart from that a “timely common recovery strategy at EU level” would be the dictate of the moment to prevent an even more drastic economic impact.