News analysis: EU predicts strong economic growth, but the forecast is not without potential pitfalls

May 14, 2021

News analysis: EU predicts strong economic growth, but the forecast is not without potential pitfalls

Rome (Italy), May 14: The European Commission on Wednesday predicted an aggressive rebound for the economies of the 27-nation bloc, though analysts said there were still many potential pitfalls that could sidetrack the recovery.
The Commission updated its economic forecast model for member states to 4.2 percent this year, up from 3.7 percent in its previous forecast, from February. It predicted further 4.4-percent growth in 2022, also stronger than the 3.9-percent estimate in the forecast three months ago.
If the estimates prove accurate, it means Europe's economies will have recovered from the 6.4-percent contraction in 2020 at some point next year.
"Recovery is no longer a mirage. It is underway," Paolo Gentiloni, European Commissioner for Economy and a former Italian prime minister, said when the forecast was unveiled.
"After a weak start to the year, we now project strong growth in both 2021 and 2022. Today, for the first time since the pandemic hit, we see some optimism prevailing over uncertainty," he said.
In its forecast, the European Union did acknowledge there were risks associated with record-high debt and deficit levels tied to increased government spending aimed at staving off the worst impacts of the coronavirus pandemic, which began having a major economic impact in Europe in February 2020.
But those risks were more than balanced out by positive factors such as the increasingly swift, continent-wide coronavirus vaccine rollout and the economic boost coming from the European Union's economic recovery fund.
According to Carsten Brzeski, chief German economist with Netherlands-based investment bank ING, other positive factors for Europe's economies include improving economic performance in China and the United States, which will have a ripple effect across the world and will help improve European exports.
"As long as there are no negative surprises the European forecasts seem very reasonable," Brzeski told Xinhua, identifying supply chain disruptions tied to the pandemic and a potential new wave of infections next fall as potential problem areas.
"The overall situation now looks much stronger than it did a few months ago. I think the potential near-term problems are factors that at worst would delay the recovery and not derail it," he said.
Lorenzo Codogno, the founder and chief economist of LC Macro Advisors and a visiting professor at the London School of Economics, said there was also a small risk that a new coronavirus strain could also have a negative impact if it proves resistant to the main vaccines being used in Europe.
But Codogno said another challenge for European officials will be to manage expectations for the continent's economic recovery.
"The forecasts predict more than 4-percent growth for the next two years," Codogno told Xinhua. "This year, the growth will be seen as a recovery from a very difficult year in 2020."
"But next year, it could feel like a simple continuation of the recovery or as a sort of economic boom that sparks new optimism. I think the difference will be based on the expectations Europeans have," he said.
Source: Xinhua