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World & Nation

Europe forecasts historic coronavirus recession this year

A man wearing a face mask waits for a train in Brussels
A man wearing a mask to protect against the coronavirus waits for a train at Schuman metro station in Brussels.
(Francisco Seco / Associated Press)

The European Union predicted Wednesday “a recession of historic proportions this year,” with a drop in output of more than 7%, as it released its first official forecast of the damage the coronavirus crisis is inflicting on the bloc’s economy.

The 27-nation EU economy is predicted to contract by 7.5% this year, before growing by about 6% in 2021. The group of 19 nations using the euro as their currency will see an even greater decline, a record 7.75%, this year, and grow by 6.25% in 2021, the European Commission said in its spring economic forecast.

“It is now quite clear that the EU has entered the deepest economic recession in its history,” EU Economy Commissioner Paolo Gentiloni told reporters in Brussels. As the virus hit, “economic activity in the EU dropped by around one third practically overnight,” he said.

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More than 1.1 million people have contracted the virus across Europe and more than 137,000 have died, according to the European Center for Disease Prevention and Control. Unclear outbreak data, low testing rates and the strain on healthcare systems mean the true scale of the pandemic is no doubt much greater.

With the spread slowing in most European countries, people are cautiously venturing out from confinement and gradually returning to work, but strict health measures remain in place amid concern of a second wave of outbreaks, and any return to something like normal life is at least months away.

The pandemic has hurt consumer spending, industrial output, investment, trade, capital flows and supply chains. It has also hit jobs. The unemployment rate across the 27-nation EU is forecast to rise from 6.7% in 2019 to 9% in 2020 but then fall to around 8% in 2021, the commission said. Beyond that, Gentiloni said, “we will have a massive drop in hours worked.”

Inflation is also set to be significantly weaker as consumer prices fall amid a sharp weakening of demand and drop in oil prices. Investment, too, is likely to contract, with firms expected to postpone or cancel their investment plans amid the uncertainty. Exporters will not be spared, with continued disruption to movements of people, goods and services likely.

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Today’s verdant pastures in eastern Germany were killing fields 75 years ago during World War II, with many soldiers buried without a trace.

Italy and Spain — two of the countries hardest hit by the virus — and, to a lesser extent, France are among the economies that are expected suffer most. Greece, which largely escaped the disease but whose economy was ravaged previously by its debt crisis and which relies heavily on tourism, is also high on the economic damage list.

France’s economy is expected to shrink by about 8.2%, while Germany will endure a more moderate contraction than most and recover better. Still, it is set to experience this year its worst recession since World War II. Its exports will be badly hit, with a drop in output of 6.5%.

While the virus hit every member country, the extent of the damage it ultimately inflicts will depend on the evolution of the disease in each of them, the resilience of their economies and what policies they put in place to respond.

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Gentiloni said that the depth of the recession and the strength of recovery will be uneven across the world’s biggest trading bloc.

As European governments race to develop mobile tracing apps to manage coronavirus infections, privacy remains a major concern.

Much will depend, he said, on “the speed at which lockdowns can be lifted, the importance of services like tourism in each economy and by each country’s financial resources. Such divergence poses a threat to the single market and the euro area — yet it can be mitigated through decisive, joint European action.”

As recently as Feb. 13, the commission had predicted “a path of steady, moderate growth” this year and next of 1.2%. At that time, uncertainty over U.S. trade policy and a Brexit trade deal, plus tensions in Latin America and the Middle East, were the main threats.

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The coronavirus outbreak in China was noted at the time as “a new downside risk,” but the commission’s assumption less than three months ago was “that the outbreak peaks in the first quarter, with relatively limited global spillovers.”


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