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EU upgrades economic forecasts as vaccination campaign gathers pace

LONDON — The European economy looks like it will shine a little brighter this year.

The European Commission presented Wednesday a more upbeat assessment of how the 27 economies will perform this year, citing an improved vaccination campaign and the expectation that EU-wide fiscal stimulus will kick in the second half of 2021.

The Brussels-based institution now foresees a gross domestic product rate of 4.2% for the EU in 2021, and of 4.4% for next year. In February, it said GDP would be 3.7% this year and 3.9% in 2022.

The prospects for the 19 countries that share the euro have also improved. Growth is now estimated at 4.3% this year, instead of 3.8% as forecast in February. The European Central Bank said in March that GDP would reach 4% in the euro area this year.

“The shadow of Covid-19 is beginning to lift from Europe’s economy,” European Commissioner for Economic Affairs Paolo Gentiloni said in a statement, adding that the “unprecedented fiscal support has been — and remains — essential in helping Europe’s workers and companies.”

“And of course, maintaining the now strong pace of vaccinations in the EU will be crucial — for the health of our citizens as well as our economies,” Gentiloni also said.

The latest forecasts come at an important moment for many EU nations as they announce — or in some cases, implement — a lifting of Covid-19 restrictions.

Greece is welcoming tourists from Friday onward. Belgium said on Tuesday that it intends to end almost all restrictions on June 9. The land border between Portugal and Spain has also reopened.

These are just some examples of how the economies are opening up ahead of the summer season, when many tourism-dependent nations will be hoping to attract more foreign visitors than last year.

Peak debt

However, there are structural issues still to address.

As a result of the vast level of government support in the wake of the pandemic, the Commission expects the aggregate EU ratio of public debt-to-GDP to peak at 94% this year, before falling slightly next year.

But, this number masks the individual picture.

Greece’s public debt pile is set to reach 209% this year, Italy’s at 160%, and France’s at 117.4%.

The European Commission, however, recognizes that the outlook is uncertain.

“The risks surrounding the outlook are high and will remain so as long as the shadow of the Covid-19 pandemic hangs over the economy,” the institution said in a statement.

There are concerns about how the virus might mutate and whether vaccines will continue to prove efficient. But there are also worries about how much consumers will be willing to spend in the coming months and when to dial back stimulus policies.

Source: Business - cnbc.com

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