Economy Commissioner Paolo Gentiloni today (12 May) presented the EU’s Spring Economic Forecast. The latest projections estimate that the EU economy will expand by 4.2% in 2021 and by 4.4% in 2022. 

While growth rates vary across the EU, the Commission forecasts that all EU countries should see their economies return to pre-crisis levels by the end of 2022.

The more rosy picture is due in part due to the efficiency and effectiveness of vaccine rollout and the growth in consumption, investment and rising demand for EU exports from a strengthening global economy. 

Gentiloni said: “For a year, we have been presenting forecasts that were very negative. Today for the first time since the pandemic hit we see some optimism prevailing over uncertainty. That uncertainty is, of course, still there and we should never forget this. But recovery is no longer a mirage. It is under way. We must avoid mistakes that could undermine it, namely a premature withdrawal of policy support. The quality, the strength, and the duration of the recovery could still be influenced by the pandemic, but our economic fate is primarily in our own hands. And that is why we need to roll up our sleeves.”

Higher levels of growth will be driven by the highest level of public investment, as a proportion of GDP, for more than a decade by 2022. This will be helped in no small part by the Recovery and Resilience Facility (RRF), the key instrument at the heart of NextGenerationEU.

Labour market

While the Commission has seen some evidence that the labour market is improving with employment rising in the second half of 2020 and unemployment rates decreasing, for some countries the levels of unemployment remain stubbornly high, with Greece at a shocking 16%. 

Public support schemes, including those underpinned by the EU’s SURE instrument, have prevented an even worse scenario, but rates of unemployment are estimated to remain higher than pre-pandemic levels after 2022. It is anticipated that companies will not be hiring until there is a further recovery. 

Inflation

Inflation rose sharply early this year, due to the rise in energy prices and a number of temporary, technical factors, such as the annual adjustment to the weightings given to goods and services in the consumption basket used to calculate inflation. The reversal of a VAT cut and the introduction of a carbon tax in Germany also had a noticeable effect. The Commission project that inflation will however remain below the target rate of 2%.

Deficit to exceed 3%

Public debt levels are expected to peak in 2021, all EU countries, except for Denmark and Luxembourg, are expected to exceed the 3% rule laid down in the Stability and Growth Pact in 2021, but this is forecasted to fall significantly in 2022. In the EU, the ratio of public debt to GDP is forecast to peak at 94% this year before decreasing slightly to 93% in 2022. 

Downside risks

Gentiloni’s main concern is the premature withdrawal of support measures which could jeopardise the recovery. On the other hand, he acknowledges that a delayed withdrawal could lead to the creation of market distortions and prolong the life of unviable firms.

There is also a warning that corporate distress and the financial sectors situation could prove worse than anticipated.

On Europe Day (9 May), the Commission announced the route and timetable of the Connecting Europe Express, as part of the European Year of Rail 2021. Beginning its journey on 2 September in Lisbon and stopping in more than 70 cities in 26 countries, the train will link the Portuguese, Slovenian and French Presidencies of the Council of the EU, arriving in Paris on 7 October. The special train will demonstrate the power of rail to connect people and businesses, and the importance of EU infrastructure policy in making this possible.

Transport Commissioner Adina Vălean said: “Crisscrossing the continent, from Lisbon to Bucharest and from Berlin to Paris, the Connecting Europe Express will follow routes that bind us together – whether countries, businesses or people. While a symbol for connectivity, this train also serves as a reminder that we still have a long way to go and much work to do before rail becomes the transport option of choice for Europeans. Welcome the Connecting Europe Express as it stops at a station near you and join the events taking place around the continent.”

The project is a unique endeavour, involving the European Commission and the Community of European Railway and Infrastructure Companies (CER), European rail operators, infrastructure managers and numerous other partners at EU and local level. At each of the stops, events and other activities, adapted to local COVID-19 measures, will shine a light on the key role that rail plays for our society, but also on the challenges that rail must still overcome to attract more passengers and freight. You can have a look at the main stops or at the full map of the route here, and watch Commissioner Vălean's video message. Find more details here.

Social inequalities are deepening. Homelessness and unemployment rates are shooting upwards, and new groups of people have emerged as at risk of poverty and social exclusion. City leaders from around 70 cities, meeting today, one day ahead of the EU Social Summit, have called for a new pact between all levels of government to reverse these dangerous trends and foster a just, sustainable and inclusive recovery.

“As city leaders, we have stepped up our responsibilities to implement social policy and guarantee public social investment over the past 12 months,” said Dario Nardella, president of Eurocities and Mayor of Florence. “But the recovery we now face will take bold actions and imagination to build back better and fairer. Despite repeated calls, many cities are still not consulted in the national recovery plans. That’s a lost opportunity that the EU cannot afford at this time, which will dampen Europe’s ability to bounce back. Without cities, the prospects for a sustainable and inclusive recovery look grim.”

In their conclusions, the city leaders say that the EU social targets for 2030 should be matched by ambitious reforms and investments. Specifically:

• An annual social summit on the European Pillar of Social Rights action plan, with a meaningful participation from cities.
• A strong social dimension in the European Green Deal.
• Strengthen social investment and investment in social infrastructure, including social and affordable housing, as the way to deliver a just recovery, leaving no one behind.

“A new pact must commit the different levels of government to design a recovery response that works for people and planet. When so many people have been so badly affected this year, especially in our cities, now is the time to lend a helping hand, not to turn our backs,” added Nardella.

Cities have already demonstrated their commitment to implementing the European pillar of Social Rights through the 66 city pledges to the Eurocities ‘Inclusive Cities 4 All’ initiative, which have so far mobilised a total of €15bn in municipal investments for social causes.

“We are ready to do even more and work shoulder-to-shoulder with the EU and member states,” concluded Nardella. “In turn, we expect European leaders to engage us as key partners in the EU agenda for recovery.”

“We must use the recovery to prioritise the needs of people through our investments in green and digital reforms!  At the local level we see that social and environmental policies are interrelated,” said Maarten van Ooijen, Chair of Eurocities Social Affairs Forum and Deputy Mayor of Utrecht. “Cities can ensure that people are skilled to match green job opportunities, and we can develop local pacts by bringing together local businesses and training providers. We also need to avoid further deepening of the housing crisis in our cities. With urgent support from the national and EU institutions we can ensure a just recovery through targeted long term social investments in affordable housing” he concluded.

Dario Nardella, President of Eurocities and Mayor of Florence, will deliver the conclusions from the Cities Social Summit directly to European leaders at the EU Social Summit on Friday 7 May 2021.

1. The following city leaders took part directly in the Eurocities Cities Social Summit, held on 6 May: Dario Nardella, President of Eurocities and Mayor of Florence; Ada Colau, Mayor of Barcelona; Ricardo Rio, Mayor of Braga; Susan Aitken, Leader of Glasgow City Council; Katrin Habenschaden, Mayor of Munich; Anne Hidalgo, Mayor of Paris; Rui Moreira, Mayor of Porto; Ahmed Aboutaleb, Mayor of Rotterdam; Maarten van Ooijen, Chair of Social Affairs Forum and Deputy Mayor of Utrecht; Sonia Fuertes, Commissioner for Social Action, Barcelona; Matteo Lepore, Deputy Mayor of Bologna; Elke Decruynaere, Vice-mayor of Ghent, responsible for education and youth; David McDonald, Deputy Leader of Glasgow; Thomas Fabian, Deputy Mayor of Leipzig; Renaud Payre, Vice President on habitat, social housing and urban policy of Lyon Metropole; André Sobczak, Deputy Mayor of Nantes; Alexandra Sußmann, Vice Mayor, Stuttgart; Betina Beśkina, Deputy Mayor of Tallinn; Marina Hanke, Vice-chair of Committee on European affairs, Vienna; Nina Abrahamzik, Councillor and Chair of the Committee on climate, environmental policy, public services and democracy of Vienna.
2. The full conclusions from the Eurocities Cities Social Summit can be accessed here  
3. Eurocities is running a campaign ‘Inclusive Cities 4 All’ engaging mayors and deputy mayors to commit to improve access to social rights, including childcare services and support for children. So far, 66 city commitments have been signed, representing 51 million citizens and totalling a municipal investment of €15bn. All city pledges are available here.
4. Eurocities wants to make cities places where everyone can enjoy a good quality of life, is able to move around safely, access quality and inclusive public services and benefit from a healthy environment. We do this by networking almost 200 larger European cities, which together represent some 130 million people across 39 countries, and by gathering evidence of how policy making impacts on people to inspire other cities and EU decision makers.

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