Europe will face 7.4% economic contraction in 2020. The European Commission expects the worst economic shock since the Great Depression in the 1930s.
According to the latest economic forecast from the executive arm of the European Union, the region is grappling with a great economic fallout.
The forecasts contain the initial estimates since European countries implemented lockdown measures due to the coronavirus outbreak. The European Commission said in February it may experience a 1.4% rise in GDP for the EU this year.
“While the immediate fallout will be far more severe for the global economy than the financial crisis, the depth of the impact will depend on the evolution of the pandemic, our ability to safely restart economic activity and to rebound thereafter,” Valdis Dombrovskis, vice-president for economic affairs said in a statement.
European governments are studying how to ease confinement measures after several weeks in lockdown. Italy, Portugal, Greece, Germany and Austria already started gradually reopening their economies.
However, this means that their overall business activity will continue to bear the economic damages in the coming months.
“Europe is experiencing an economic shock without precedent since the Great Depression,” Paolo Gentiloni, European Commissioner for the economy, said in a statement.
“Both the depth of the recession and the strength of recovery will be uneven … Such divergence poses a threat to the single market and the euro area,” he said, calling on European governments to take decisive action.
The European Commission plans to inject further economic stimulus into the region. They will launch a so-called Recovery Fund in the coming days. Gentiloni hinted that the fund could reach 1.5 trillion euros.
Italy, one of the countries the pandemic hit the most, may contract 9.5% this year.
This is the second-worst performance in the euro zone. Meanwhile, Greece could contract by 9.7%.
The COVID-19 pandemic and several containment measures may shove Italy’s economy into a deep recession,according to the Commission’s forecasts.
The Commission added that Italy’s real output contracted by 18% in the first half of the year. Moreover, the body remains optimistic about a rebound during the second half of 2020.
The Commission reported that Italian public debt may reach 158.9% of GDP this year. Its public deficit may rise to 11.1%
The pandemic will also impact Europe’s growth engine. Germany could contract by 6.5% in 2020.
The International Monetary Fund (IMF) previously said that the global economy may not recover from the coronavirus outbreak next year.
IMF indicates that the global economy will decline by 3% this year before recuperating by 5.8% next year. Gopinath describes this rebound as a “partial recovery.”
“We have a recovery projected for 2021 of 5.8% growth, but that is a partial recovery,” Gopinath told CNBC’s “Squawk Box Asia.”
“So even by the end of 2021, we’re expecting level of economic activity to be below what we had projected before the virus,” she noted.
Meanwhile, the World Health Organization (WHO) stressed that the resurgence of the COVID-19 disease will likely continue.
“Our global connectedness means the risk of re-introduction and resurgence of the disease will continue,” said Ghebreyesus.
The development and delivery of a safe and effective vaccine can fully interrupt transmission, he added.