EU forecasts 7.4pc GDP contraction in 2020

The EU and eurozone economies will contract at record rates this year, according to the latest projection from the European Commission.

It sees real gross domestic product (GDP) in the EU27 contracting by 7.4pc. For the eurozone this contraction is 7.7pc, broadly in line with the most recent forecast from the IMF.

The commission then sees inflation-adjusted EU GDP growth of 6.1pc in 2021.

The commission noted variations across the EU27 because of the degrees to which the Covid-19 pandemic has affected different countries and because of the relative strengths and weaknesses of member states' economies. Greece (-9.7pc), Italy (-9.5.pc) and Spain (-9.4pc) perform worse than Austria (-5.5pc) and Poland (-4.3pc). It said the EU's largest economy, Germany, faces a 6.5pc GDP cut, and France faces an 8.2pc cut.

The commission calculates a GDP cut of 8.3pc in the UK, based on an assumption of retained trading relations.

The commission makes its forecast on the basis of "benign" assumptions, notably that Covid-19 containment measures are gradually lifted, that the pandemic remains under control, and that national and EU monetary and fiscal measures are effective in boosting the economy.

The commission assumes oil prices picking up only "moderately" during the rest of this year to levels around 50pc below their 2019 average. Given this, the commission revised down its forecasts for harmonised consumer price index (HCPI) inflation in the eurozone to 0.2pc this year. It then forecasts a rise to 1.1pc in 2021.

The commission said that a more severe and longer-lasting pandemic could cause a far greater GDP cut than assumed in its baseline scenario.

By Dafydd ab Iago

source: Argus Media