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Eurozone GDP Set To Recover At Slower Pace In 2021

eurozone july30 05nov20 lt

The euro area is expected to recover next year at a slower than previously estimated pace as the resurgence in coronavirus infections led to the re-introduction of containment measures, the European Commission said Thursday.

According to autumn forecast, real gross domestic product is expected to shrink by 7.8 percent in 2020, before rebounding by 4.2 percent in 2021 and 3.0 percent in 2022.

The projection for 2020 was revised up from 8.7 percent, while that for next year was downgraded from 6.1 percent.

Beyond the third quarter of 2020, growth momentum is set to ease significantly, in particular in the fourth quarter when an interruption of the rebound is projected, the commission noted.

The forecast is based on the assumption that the stringent measures to contain the virus will start gradually easing in 2021 and the EU and the UK will trade on WTO Most Favoured Nation from 2021.

Although Eurozone inflation turned negative in August and September, it is set to tick higher but to remain moderate at 1.1 percent in 2021 and 1.3 percent in 2022.

The Covid-19 pandemic has put EU labor markets under severe strain, EU said. The unemployment rate is forecast to rise to 9.4 percent in 2021 from 8.3 percent this year. The rate is seen at 8.9 percent in 2022.

Among big-four nations, Germany is forecast to rebound in 2021 and 2022 as capacity utilization and activity recover. After contracting by an estimated 5.6 percent this year, EU expects 3.5 percent growth next year and 2.6 percent in 2022.

Supported by fiscal measures aimed at protecting employment in 2020, and the recovery plan in 2021 and 2022, France's economic activity is set to rebound slowly. The EU forecast the French economy to shrink 9.4 percent in 2020 and to expand 5.8 percent next year and 3.1 percent in the following year.

Spain's economy is forecast to rebound strongly in the second half of the year, but the recovery will be uneven across sectors. GDP is projected to contract 12.4 percent this year but to expand 5.4 percent in 2021 and 4.8 percent in 2022.

The EU observed that Italy is rebounding from a deep output trough, but the pandemic and its negative repercussions persist and weigh on economic activity over the forecast period. Italy's GDP is set to decline 9.9 percent this year but to grow 4.1 percent in 2021 and 2.8 percent in 2022.

The UK GDP is projected to fall steeply by 10.3 percent in 2020, driven by a large drop in domestic demand. The recovery in 2021 is expected to be subdued. The EU forecast 3.3 percent growth in 2021 and 2.1 percent in 2022.

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