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Financial News: EU Sees Worst Recession On Record This Year

EU Sees Worst Recession On Record This Year On Covid-19

05/06/2020 - 08:14:00 (RTTNews)

(RTTNews) - The European Commission on Wednesday downgraded the growth forecasts for the Eurozone and the European Union and said the region is set to witness a recession of "historic proportions" this year due to the "major shock" from the coronavirus, or Covid-19, pandemic and the consequent lockdown. Eurozone is forecast to shrink a record 7.75 percent this year, but grow 6.25 percent next year, the executive arm of the EU said in its Spring 2020 Economic Forecast. The EU economy is projected to contract 7.5 percent this year and expand around 6 percent in 2021.

Growth projections for both EU and euro area were revised down by around nine percentage points from the previous forecast. "This is a symmetric shock: all EU countries are affected and all are expected to have a recession this year," Valdis Dombrovskis, EU vice president for economic affairs, said.

The EU and Member States have already agreed on extraordinary measures to mitigate the impact and the collective recovery will depend on continued strong and coordinated responses at EU and national level, the top official said. "Both the depth of the recession and the strength of recovery will be uneven, conditioned by the speed at which lockdowns can be lifted, the importance of services like tourism in each economy and by each country's financial resources," Paolo Gentiloni, EU economic affairs commissioner, said. "Such divergence poses a threat to the single market and the euro area - yet it can be mitigated through decisive, joint European action."

The euro area unemployment rate is forecast to climb to 9.5 percent this year from 7.5 percent in 2019. Thereafter, it is seen easing to 8.5 percent in 2021. In the EU, the unemployment rate is forecast to rise to 9 percent this year from 6.7 percent in 2019 and then fall to around 8 percent in 2021.

Eurozone inflation is seen at just 0.2 percent this year and at 1.1 percent next year. For the EU, inflation is seen at 0.6 percent in 2020 and 1.3 percent in 2021.

Exceptional stimulus measures to support the economy during the pandemic is expected to increase public deficit and debts in the bloc. The forecast baseline assumes that lockdowns will be gradually lifted from May onwards, the EU said.

"The risks surrounding this forecast are also exceptionally large and concentrated on the downside," the EU added. The commission also warned that "a more severe and longer lasting pandemic than currently envisaged" could cause a far larger fall in GDP than projected in the baseline scenario in this forecast. "In the absence of a strong and timely common recovery strategy at EU level, there is a risk that the crisis could lead to severe distortions within the Single Market and to entrenched economic, financial and social divergences between euro area Member States," the commission added.

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