EU foresees worse economic slide

EU foresees worse economic slide

The European Commission revised down its economic forecast for the euro area and warned things could get worse if a second wave of the pandemic forces further lockdowns.

The updated forecast on Tuesday said the eurozone economy is set to shrink by 8.7 percent this year — 1 percentage point worse than the EU executive predicted in early May.

The revision is still less dramatic than the International Monetary Fund’s forecast from two weeks ago for a 10.2 percent contraction in the 19-country currency zone.

Still, it heaps pressure on EU leaders to reach a deal next week over the Commission’s proposed €750 billion recovery blueprint, known as NextGenerationEU.

“We continue to navigate in stormy waters and face many risks, including another major wave of infections,” Executive Vice President Valdis Dombrovskis said in a statement. “If anything, this forecast is a powerful illustration of why we need a deal on our ambitious recovery package, NextGenerationEU, to help the economy.”

“The cautious rebound is now beginning,” Economy Commissioner Paolo Gentiloni added during a news conference. But he warned that the impact continues to hit harder in some countries than others.

His own Italy is on pace for the worst year among eurozone members, with an 11.2 percent contraction, followed by Spain at 10.9 percent and France 10.6 percent. Outside the currency club, Croatia — the EU country most economically dependent on international tourism — faces a 10.8 percent decline.

“The risk of an increasing divergence was the rationale for proposing our common recovery plan,” Gentiloni said. “This argument is now stronger than ever.”

Governments are at odds over how much money countries should get in grants and loans and what conditions should come with the payout.

The Commission’s forecast didn’t factor in any stimulus effect from NextGenerationEU. It warned against rising unemployment and a possible cash crunch that could push companies to the edge.

Failure to get a deal on Brexit will also hurt growth, which the Commission forecast would rebound next year by 6.1 percent.

Inflation this year is expected at 0.3 percent this year and 1.1 percent in 2021.

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