On 7 July 2020, the Commissioner for Economy, Paolo Gentiloni presented the Summer Economic Forecast 2020. And he brought bad news with him: the recession might be even deeper than anticipated in spring.
The European Commission’s Summer 2020 Economic Forecast shows an even deeper recession than anticipated in spring. This does not really come as a surprise as the protective measures to fight the pandemic started to hit the European economy hard in the 2nd quarter of 2020. Hence, the economic recovery will not be as fast as originally hoped. According to forecasts, the economy in the Eurozone will shrink by 8.7 % in 2020 and by 8.3 % in the entire EU. The prognosis for 2021 is an economic growth of 6.1 % for the Eurozone and of 5.8 % for the entire EU.
In May, within the scope of the Spring Economic Forecast, one still assumed a shrinking of the economy in the Eurozone by 7.7 % and in the entire EU by 7.4 % for 2020. As in spring, the Summer Economic Forecast works on the assumption that the protective measures will be gradually eased. In doing so, the prognosis is also based on the assumption that this year the pandemic in Europe would only appear in form of local outbreaks.
Development of inflation unchanging
Regarding inflation, there are little changes compared to the last prognosis. On the one hand, oil and food prices have risen slightly more than anticipated, whilst on the other hand, measures such as reducing VAT in some countries had a positive effect. Hence, inflation in EU average, compared to Spring, is similarly low: the prognosis for 2020 is inflation of 0.3 % in the Eurozone and 1.1 % for 2021. One expects Inflation of 0.6 % in the entire EU for 2020 and 1.3 % for 2021.
Negative risks continue to prevail
Due to the fact that it is difficult to predict the extent and duration of the pandemic, the prognosis continues to be uncertain. The development of the labour market, for example, is of vital importance. It has been hugely weakened, which is reflected above all in the reduction of paid working hours. So far, the introduction of short-time work has been able to prevent an even greater increase in unemployment. The prognosis might be somewhat less negative if, for example, a vaccine is found soon or if the Commission’s Recovery Plan “Next Generation EU“ is speedily implemented.
Great differences between Member States
The differences to be expected between countries are even greater than assumed in spring. In the Eurozone, Member States Italy (-11,2 %), Spain (-10,9 %) and France (-10,6 %) feel the effects of the economic crisis most strongly. Outside the Eurozone, Croatia – very dependent on international tourism – with a decrease in GDP of 10.8 %, has been hit the hardest. Least affected by the economic crisis are Poland with a GDP reduction of 4.6 %, Denmark (-5,2 %) and Sweden (-5,3 %). Thus, all the more important is the good and speedy recovery of the entire European economy. The Recovery Package “Next Generation EU”, which yet has to be decided by the Council and confirmed by Parliament has not yet been taken into account in the prognosis. Commissioner Gentiloni emphasised how important it was that “an agreement is reached swiftly on the recovery plan and the new Multiannual Financial Framework, to inject both new confidence and new financing into our economy at this so critical time.”
Looking towards Austria
According to the Summer Economic Forecast, Austria’s economy will shrink by 7.1 % in 2020. This shows a more negative picture than outlined in the Spring Forecast, which assumed the economy shrinking by 5.5 % in 2020 and growing by 5 % in 2021. In March and April 2020, unemployment in Austria rose significantly. Over 1.3 million applications for short-time work also clearly show how severely the Austrian labour market had been affected by the crisis. However, the short-time work system successfully negotiated by AK and the Austrian Trade Union Federation ÖGB, was able to prevent an even worse outcome. A slow normalisation of economic activity has been forecast for the second half of the year. 2021 should see a solid recovery with an economic growth of 5.6 %.