The European Commission lifted its growth projection for the bloc on Thursday, while warning of mounting headwinds as the fourth wave of the coronavirus pandemic hits the continent, according to Politico.
The Commission raised its growth forecasts for the eurozone to 5.0% for this year after a 6.4% recession in 2020. Its forecast growth of 4.3% in 2022 and 2.4% in 2023. Its forecast in May for 2021 growth was only 4.3%.
In 2023, the Commission expects the EU economy to expand by 2.5%.
“There are three key threats to this positive picture: a marked increase in COVID cases, most acute in areas where vaccinations are relatively low; rising inflation, driven largely by a spike in energy prices; and supply-chain disruptions that are weighing on numerous sectors,” said European Economic Commissioner Paolo Gentiloni.
As for inflation, the Commission raised its forecast for the eurozone to 2.4% from 1.7% in 2021 and to 2.2% from 1.3% in 2022. The first forecast for 2023 sees inflation at 1.4%, which lies well below the European Central Bank’s 2% target.
The Commission cautioned that price pressures may turn out higher than forecast if supply constraints persist and wage-increase demands exceed productivity and are passed on to consumer prices.
Improved growth prospects point to lower deficits in 2021 than those expected last spring, the Commission noted. After reaching 6.9% of GDP in 2020, the aggregate deficit in the EU should narrow to 6.6% in 2021 before dropping to around 3.6% in 2022 and 2.3% in 2023.
The debt-to-GDP ratio is seen reaching 99% in the eurozone and 92% in the EU this year. It’s expected to decline in 2022 to 97% in the eurozone and 89% in the EU in 2023.