Wednesday May 12, 2021
Hope for private consumption
EU Commission raises GDP forecast
The EU Commission has corrected its forecasts for economic development in the euro area upwards. The regional differences in the Union are great. The draft horses are France, Italy and Germany. However, there are risks that could slow down development.
The EU Commission has significantly increased its forecasts for economic growth in the euro area. As she announced in her spring forecast, she now expects gross domestic product (GDP) to grow by 4.3 percent in the entire euro area in 2021. The forecast in winter was 3.8 percent. It even predicts GDP growth of 4.4 percent for 2022. There, too, the forecast was so far at 3.8 percent.
The forecasts for the current year have also been raised for the three largest economies – Germany, France and Italy. “Growth rates will continue to vary, but all Member States should return to pre-crisis levels by the end of 2022,” said the Commission. “Eurozone growth is expected to accelerate as vaccination rates rise and restrictions are relaxed. This growth will be driven by private consumption, investment and increasing demand for EU exports from a strengthening global economy.”
The authority believes that the German economy will grow by 3.4 (previously: 3.2) percent this year. An increase of 4.1 (3.1) percent should then follow in 2022. For France, the GDP growth forecast for this year has been increased to 5.7 (5.5) percent. In 2022, growth should then amount to 4.2 (4.4) percent. The Commission expects the Italian economy to grow by 4.2 (3.4) percent this year and 4.4 (3.5) percent in the following year.
Inflation could slow development
According to the forecasts, inflation in the euro area will rise from 0.3 percent in 2020 to 1.7 (1.4) percent in the current year, before weakening again to 1.3 (1.3) percent in 2022. In Germany, inflation rose for the fourth month in a row. It was two percent in April. ECB director Isabel Schnabel even believes an increase to three percent in this country is possible.
“The risks to the outlook are high and will remain so as long as the shadow of the pandemic hangs over the economy,” warned the agency. The forecast may underestimate households’ propensity to spend or underestimate the desire of consumers to maintain a high level of retirement savings. Another factor of uncertainty is when the fiscal support will be withdrawn. If this is reduced too early, the recovery could be slowed down significantly.
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