European Union Economic Forecasts “Light At The End Of The Tunnel”

The European Commission has released its Winter 2021 Forecast, which show improved prospects for the block and with higher than expected 2021 growth for Spain.

The report is cautiously optimistic for economic growth,despite that much of the continent is still “in the grip of the coronavirus pandemic” and faces renewed challenges for the “new, more contagious strains of the coronavirus”.

Spain’s gross domestic product (GDP) is expected to grow by 5.6% in 2021 which is a slight increase on the previous report´s expectations for the economy.

For 2022, the EU report is forecasting GDP growth of 5.3%, up from the previous figure of 4.8% which puts Spain ahead of all other EU countries and should allow the country to have recovered its pre-pandemic GDP levels by the end of next year.

In contrast the euro area economy will grow by 3.8% in both 2021 and 2022 and the EU economy by 3.7% in 2021 and 3.9% in 2022.

The report also highlighted the positive risks are linked to the possibility that the vaccination process leads to a faster-than-expected easing of containment measures and therefore an earlier and stronger recovery.

In addition the EU economic recovery package NextGenerationEU, whose centrepiece Recovery and Resilience Facility (RRF) is likely to “fuel stronger growth than projected, since the envisaged funding has – for the most part – not yet been incorporated into this forecast”.

The Bank of Spain estimates that these funds could boost the country´s economy by 2.1%.

Spain´s economy enjoyed a stronger than expected third quarter of 2020, after the unprecedented contraction in the first half of the year which was fueled by domestic demand which carried on to fourth quarter with growth just over the positive line at 0.4%.

Although the near-term outlook for 2021 is clouded by the rise in infection rates in the first weeks of the year and the more restrictive measures put in place by most Spanish regions. the report noted that the vaccination programme is allowing for restrictions to be progressively lifted and thereby see increased economic activity.

As a result “pent-up demand is expected to be released over the second half of 2021 and see economic activity and investments to rebound, driven by improved expectations for the economy”.

A soft recovery in international tourism is expected as the vaccine programme continues, which will help Spain´s tourist sector which accounted for around 12% of GDP in 2019 but less than 4% in 2020.

“While the outlook for the near term looks weaker than expected last autumn, growth in the European economy is set to resume this spring and gather momentum in the summer, as progress in vaccinations allows for a gradual unfreezing of economic activity,” reads the report, even as it warns about the possibility of a resurgence of infections that would delay recovery once more.


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