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EU foresees worse economic slide, warns of more lockdowns

The European Commission revised down its economic forecast for the euro area and warned things could get worse if a second wave of the pandemic forces further lockdowns.

The updated forecast on Tuesday said the eurozone economy is set to shrink by 8.7 percent this year — 1 percentage point worse than the EU executive predicted in early May.

The revision is still less dramatic than the International Monetary Fund’s forecast from two weeks ago for a 10.2 percent contraction in the 19-country currency zone.

Still, it heaps pressure on EU leaders to reach a deal next week over the Commission’s proposed €750 billion recovery blueprint, known as NextGenerationEU.

“We continue to navigate in stormy waters and face many risks, including another major wave of infections,” Executive Vice President Valdis Dombrovskis said in a statement. “If anything, this forecast is a powerful illustration of why we need a deal on our ambitious recovery package, NextGenerationEU, to help the economy.”

Governments are at odds over how much money countries should get in grants and loans and what conditions should come with the payout.

The Commission’s forecast didn’t factor in any stimulus effect from NextGenerationEU. It warned against rising unemployment and a possible cash crunch that could push companies to the edge.

Failure to get a deal on Brexit will also hurt growth, which the Commission forecasted would rebound next year by 6.1 percent. Inflation this year is expected at 0.3 percent this year and 1.1 percent in 2021.

This article is part of POLITICO’s premium policy service: Pro Financial Services. From the eurozone, banking union, CMU, and more, our specialized journalists keep you on top of the topics driving the Financial Services policy agenda. Email for a complimentary trial.

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