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EuropeEuropean Union warns no return to pre-Covid pandemic economy before 2023

European Union warns no return to pre-Covid pandemic economy before 2023

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BRUSSELS: A second wave of the coronavirus pandemic has stalled a nascent recovery in Europe, the European Union (EU) said today, warning that the economy would not return to pre-virus normality before 2023.

“The rebound has been interrupted,” the EU’s economic affairs commissioner Paolo Gentiloni told reporters as he announced new forecasts.

The soured outlook dashed hopes for a quick turnaround of the European economy and raised questions whether more stimulus would be needed to avert more lasting damage.

“We never counted on a V-shaped recovery. Now we know for sure that we won’t have one,” Gentiloni said.

In its forecast, Brussels pointed to a whole series of danger signs, including higher unemployment and soaring debt levels for countries that will need to keep spending to revive their economies.

The European Commission said the eurozone economy would expand by just 4.2% next year, much lower than the 6.1% it predicted in July.

In effect, renewed disruptions across the continent will “put the recovery on hold in the short term”, Gentiloni said, but added that the outlook was subject to “extremely high uncertainty”.

The loss of steam came despite a better-than-expected recovery in the middle of 2020 which limited the depth of this year’s historic recession.

The economy in the 19 countries that use the single currency would crash by minus 7.8 percent in 2020, instead of the minus 8.7 predicted earlier, the EU said.

But, unlike earlier hopes, EU economic output “will not return to pre-pandemic levels by 2022,” warned commission Vice President Valdis Dombrovskis.

All 19 eurozone countries are mired in recession this year, but three are particularly hard hit – Spain with a dive of 12.4%, Italy at minus 9.9% and France at minus 9.4%.

Germany, the bloc’s leading economy, has limited the damage, with GDP expected to fall 5.6% in 2020.

The downturn has led member states to open the purse strings in the hopes of saving their economies and public deficits have widened to more than 10% in the case of France, Italy, Spain and Belgium.

As a clear consequence, the debt of the member states is expected to soar in 2020 and will exceed 100% of GDP in the eurozone as a whole.

The commission called on the European Central Bank to keep doing all it can to offset the negative consequences of this heavy debt.

So far, thanks to the ECB’s action, the financial markets have shrugged off the extra public spending with borrowing costs currently near record lows despite the high debt.

The EU also underlined the uncertainty of stalled post-Brexit talks, which “clearly weighs on the EU’s economic outlook,” Dombrovskis said.

In another development, the recovery in German industrial orders from the shock of pandemic restrictions slowed in September, official data showed on Thursday, as new measures to tackle a resurgence in cases clouds the outlook again.

“After the first strong recovery following the lockdown in April, industry is continuing to fight its way out of the crisis,” the economics ministry said in a statement.

Industrial orders grew 0.5% month-on-month, compared with a rise of 4.9% in August, as curbs tightened and quarantines became more widespread across Europe to fight a second wave of the pandemic.

The data was below expectations for a 1.5% rise, according to financial services provider FactSet.

The small rise was sustained by domestic demand which went up 2.3% in September, while orders from abroad dipped 0.8%.

Compared with the same month in 2019, industrial orders were down 1.9%.

Manufacturing has benefited from Germany’s economic recovery from May onwards, enabling orders to return close to levels in the fourth quarter of 2019 before the outbreak of the pandemic, the ministry said, “driven by domestic and foreign demand”.

The automotive industry, the engine of the German economy, saw orders rebound strongly at 5.1%, reaching levels 5.8% above February 2020.

Germany’s economy expanded by a record 8.2% in the third quarter as restrictions were lifted and shops and factories reopened.

However, lockdowns announced by Chancellor Angela Merkel to curb the second wave in the country for the month of November will likely hit the economy again. – AFP

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