THE EUROPEAN COMMISSION has downgraded its 2020 outlook for the Irish, eurozone and broader European Union economies.
Commenting on the latest forecasts, European Commissioner for the Economy, Paolo Gentiloni, said that “the pandemic has hit the European economy harder than previously expected”.
In its summer economic forecast, the Commission has pencilled in an 8.5% decline in Irish gross domestic product (GDP) — the total monetary value of all goods and services produced in the Irish economy — for 2020.
The latest prediction represents a decline from the Commission’s last set of forecasts, released in May, which predicted a 7.9% drop in Irish output for the year as a result of the pandemic.
It now estimates that the Irish economy will grow by 6.25% in 2021, a slight improvement from the 6.1% growth rate forecast in May.
The Commission’s outlook for Ireland this year is marginally more optimistic than that of the Irish Central Bank. In its Quarterly Economic Bulletin, published last week, the Bank forecast Irish GDP to decline by at least 9% this year and by as much as 14% if the government has to reimpose strict shutdown measures as a result of a second wave of Covid-19.
However, the Commission expects the Irish contraction this year to be slightly below the eurozone a whole but above the expected shrinkage of the broader European Union economy.
It now believes that eurozone GDP will fall by 8.7% this year, up from 7.7% in May’s set of forecasts, while the economy of the European Union as a whole is forecast to decline by 8.3%, up from 7.3%.
The commission also lowered its forecast for a potential economic rebound in eurozone 2021, pencilling in growth of 5.8%, down from the 6.1% predicted in May.
Speaking to reporters, Gentiloni said that these predictions might already be too optimistic.
“Risks are mostly but not all on the downside”, he said.
“Assumptions about the pandemic could be too optimistic. In the absence of a vaccine and treatment options for Covid-19, any sustained increase in the number of infections or further major outbreaks would worsen the economic outlook.”
Gentiloni also highlighted the uneven nature of both the recession and next year’s predicted recovery across the constituent economies of the European Union.
He explained that this was due to the fact that some countries, like Germany, were able to restart business activity at an earlier stage while other countries, such as Spain, have had to reimpose localised restrictions.
“Divergences across countries in terms of both the recession and the rebound are related to different timing and stringency of lockdowns and containment,” he said, “as well as different economic structures, namely exposure to tourism and services reliant on person-to-person contact.
“As we have revised our assumptions about containment measures, the expected differences across Member States have also become larger.”
European Commission executive Vice president Valdis Dombrovskis added, “The economic impact of the lockdown is more severe than we initially expected. We continue to navigate in stormy waters and face many risks, including another major wave of infections.
“Looking forward to this year and next, we can expect a rebound but we will need to be vigilant about the differing pace of the recovery.”
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