European economy hit worse by coronavirus crisis than thought, EU says

The European Commission said Tuesday the economy of countries using the euro currency would likely retract by 8.7 percent this year in a more pessimistic outlook on the continent’s recovery from the Covid-19 epidemic than previously forecast.

A waiter wearing a face mask prepares to welcome customers as France began lifting coronavirus lockdown in early June. The European Union said Tuesday the economies of the eurozone will not be fully recovered until 2022 at the earliest. Reuters/Charles Platiau

The European Commission said the economies of countries that sustained the heaviest tolls of the Covid-19 epidemic, including France, Italy and Spain, would all contract by more than 10 percent before partially recovering in 2021. 

New forecasts saw the eurozone economy bouncing back by 6.1 percent in 2021, meaning it will still be worse off than it was prior to countries shutting down their economies in hopes of slowing the spread of the disease.

Summer 2020 #ECForecast: A deeper recession with wider divergences.

The euro area economy is forecast to contract by 8.7% in 2020 & grow by 6.1% in 2021. The EU economy is forecast to contract by 8.3% in 2020 & grow by 5.8% in 2021.

Press release: https://t.co/xa0TjpxAiW pic.twitter.com/Kit2oygjEg

— EU Economy & Finance (@ecfin) July 7, 2020

“The economic impact of the lockdown is more severe than we initially expected,” Commission Vice President Valdis Dombrovskis said in a statement accompanying the new forecasts. 

The revised forecasts are more dire than the previous forecasts in the springtime, which predicted a 7.7-percent downturn in 2020. 

France, the second-largest economy using the euro after Germany, is expected to contract by 10.6 percent this year and grow 7.6 percent in 2021.

The economies of Italy and Spain would retract 11.2 and 10.9 percent respectively, before rebounding by 6.1 and 7.1 percent.

“The policy response across Europe has helped to cushion the blow for our citizens, yet this remains a story of increasing divergence, inequality and insecurity,” European Economy Commissioner Paolo Gentiloni said.

“This is why it is so important to reach a swift agreement on the recovery plan proposed by the Commission,” he added, referring to a 750-billion-euro proposal to inject recovery funds into the eurozone’s hardest-hit economies. 

Backed by France and Germany, the funds would be incorporated into the 2021-2027 EU budget, with two-thirds in the form of grants and the rest in conditions-based loased. 

Leaders of the 27 European Union member states will give an initial response to the proposal at a leader summit on 17 and 18 July.

(with newswires)