Europe faces a deep recession in 2020, while the UK economy is expected to shrink by almost 10% this year, said the European Commission.
Brussels forecasts a 8.3% drop in GDP for the 27 economies of the European Union in 2020, followed by a 5.8% rebound in 2021. The euro zone is expected to contract by 8.7% this year, with growth of 6.1% in 2021. Both are worse for weaker declines and rebounds than the historic slowdown forecast by the commission in May.
The British economy will shrink by 9.75% in 2020, placing it among the most affected economies in Europe, although France, Spain and Italy are facing even larger declines in production (10 , 6%, 10.9% and 11.2% respectively). Germany, facing a 6.3% drop in its GDP in 2020, and the Netherlands (-6.8%) are facing less severe slowdowns, while Poland should cope with the shallowest recession (-4.6%).
The dark figures were released 10 days before European leaders met in Brussels to seek an agreement on a recovery plan of 750 billion euros (678 billion pounds sterling), following a Franco-French proposal. German grants to help the hardest hit countries.
While all actors say they want an agreement this summer, the plan continues to face fierce resistance from the so-called “frugal four”, Austria, Denmark, Sweden and the Netherlands, which oppose subsidies, favoring loans.
The European Commission argues that the loans will add to the national debt burden, while the fear of an uneven economic recovery could leave some countries stuck in the slow economic path for years to come.
“The risk of a growing divergence was the justification for the proposal of our common recovery plan and this risk seems to materialize,” said Paolo Gentiloni, European Commissioner for the Economy. “This is why it is so important to reach a swift agreement on the stimulus plan proposed by the commission – to inject both new confidence and new funding into our economies at this critical time.”
The EU executive sees many risks that could worsen the economic outlook, including a resurgence of the coronavirus resulting in new closings.
Risks to the UK economy were “mainly down,” according to the commission, as its forecasts are based on current trade relations between the UK and the EU, which end on December 31, 2020. Once the UK will leave the single market and the EU customs union, trade with the bloc, the UK’s largest export market, will become more difficult, even if the two sides reach an agreement. The committee said failing to reach an agreement is “a significant risk” which would be “particularly negative for the United Kingdom”.
So far, the impact of the coronavirus downturn on employment has been less bad than some feared, which the commission attributes to part-time work programs that have kept people in their jobs for reduced hours , a political position that contrasted with the United States, where unemployment demand surged.