EU economy set to rebound faster than expected

The European economy is forecast to rebound faster than previously expected, at 4.8% this year and 4.5% in 2022. Real GDP is set to return to pre-crisis levels by the end of the year.

Activity in the first quarter of the year exceeded expectations. The EU’s fast pace of vaccination, following its initial problems with the supply of the AstraZeneca vaccine, means that it is narrowing the gap with other advanced economies such as the UK and US. At least 62% of the EU's adult population has received at least one dose of a vaccine, a doubling the share of last month's figure. 

The Summer 2021 interim economic forecast estimates that the economy in the EU and the euro area will expand by 4.8% this year and 4.5% in 2022. 

Real GDP is projected to return to its pre‑crisis level in the last quarter of 2021 in both the EU and the euro area. For the euro area, this is one quarter earlier than expected in the Spring Forecast.

Reopening of the economy benefited service sector businesses in particular, with evidence suggesting revival in intra-EU tourist activity, assisted by the introduction of the EU Digital COVID Certificate. Upbeat survey results among consumers and businesses as well as data tracking mobility suggest that a strong rebound in private consumption is already underway. 

However, inflation has seen a small upward revision to 1.9% for the euro area, this is thought to be largely due to temporary input shortages and rising costs of energy and commodities hitting parts of the manufacturing sector.

Private consumption and investment are expected to be the main drivers of growth, supported by employment that is expected to grow with the economy. 

The main risk to the growth outlook is the emergence and spread of COVID-19 variants, which Economy Commissioner Gentiloni said underlined the importance of accelerating the vaccination campaigns. 

Gentiloni said: “The EU economy is set to see its fastest growth in decades this year, fuelled by strong demand both at home and globally and a swifter-than-expected reopening of services sectors since the spring. Thanks also to restrictions in the first months of the year having hit economic activity less than projected, we are upgrading our 2021 growth forecast by 0.6 percentage points. This is the highest upward revision we have made in more than 10 years and is in line with firms' confidence reaching a record high in recent months. 

“To keep the recovery on track, it is essential to maintain policy support as long as needed. Crucially, we must redouble our vaccination efforts, building on the impressive progress made in recent months: the spread of the Delta variant is a stark reminder that we have not yet emerged from the shadow of the pandemic.”

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