The eurozone economy will contract by a record 7.7 percent this year because of the Covid-19 pandemic and inflation will almost disappear while public debt and budget deficits will balloon, the European Commission forecast on Wednesday.
“Europe is experiencing an economic shock without precedent since the Great Depression,” European Commissioner for Economic and Financial Affairs Paolo Gentiloni 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,” he said.
The Commission forecast that, as the economy contracts this year, consumer prices will almost stagnate. The inflation rate will slow to 0.2 percent in 2020, before accelerating to 1.1 percent next year, when the eurozone is to return to growth of 6.3 percent. Investment will plunge 13.3 percent this year, it said.
The effort to keep economies alive will boost budget deficits in the eurozone to an aggregate 8.5 percent of GDP this year from 0.6 percent last year, before the aggregate gap shrinks again to 3.5 percent in 2021.
A surge in public debt, however, will take longer to undo, the Commission said, forecasting that eurozone debt will jump to 102.7 percent of GDP this year from 86 percent last year, and receding only to 98.8 percent in 2021.
Italy, Greece, Spain and Portugal will be among the hardest hit by the economic effects of the pandemic, while Luxembourg, Malta and Austria are to weather the shock better.
Greek GDP is to contract the most, by 9.7 percent, with Italy recording the second deepest recession of 9.5 percent and Spain 9.4 percent.
The budget deficit of Italy, the EU country hardest hit by the coronavirus, will surge the most to 11.1 percent of GDP this year from 1.6 percent last year, but will fall back to 5.6 percent in 2021, the Commission forecast.
Spain’s deficit will just exceed 10 percent this year, up from 2.8 percent in 2019 and France will be close behind with a budget gap of 9.9 percent this year. The Commission expects it to fall to 4.0 percent next year.
Italy’s public debt will also record the biggest increase this year to 158.9 percent of GDP from 134.8 percent in 2019. It is seen falling to 153.6 percent in 2021, the Commission said.