EU economy will contract 7.5% this year in worst economic shock since Great Depression

The coronavirus pandemic will plunge most of Europe into its worst recession since the 1930s, according to a grim forecast released by the European Commission (EC).

Brussels has had to abandon any hope of growth for both the EU and euro area in 2020, as the economies are set to contract by 7.5 and 7.75 percent respectively, according to this year’s Spring Economic Forecast released on Wednesday.

The decline is set to be the worst ever for the eurozone. Compared to previous estimates, growth projections have been revised down by around nine percentage points.

“Europe is experiencing an economic shock without precedent since the Great Depression,” said European Commissioner for the Economy Paolo Gentiloni.

While the EU expects that the deep recession will be followed by a growth of over six percent, the losses inflicted by the virus are unlikely to be offset till the end of 2021. The report signals that the recovery will be “uneven”, as lockdown measures to stop the spread of the Covid-19 will not be lifted simultaneously by all the members of the bloc.

“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,” the EU’s Vice President for Economic Affairs Valdis Dombrovskis said in a statement.

The EC noted that the figures may change for the worse if the pandemic lasts longer, preventing the reopening of businesses and travel. The economic downturn may be “far larger” than assumed in the baseline scenario of the latest forecast.

Some members of the union, including economic heavyweights, have already made their own gloomy predictions on the aftermath of the coronavirus outbreak. EU’s biggest economy, Germany, said it could record the worst economic dive in the post war-era, as its gross domestic product (GDP) may decline over six percent. France expects almost the same downturn as Germany, while Spain expects its economy to contract by 9.2 percent this year.

Record number of people claim unemployment benefits in Spain

Despite unemployment rising at a slower pace in April, some 3.8 million people were left without jobs, and the number depending on benefits hit a record 5.2 million, Spain’s Labor Ministry has revealed.

Last month, the number of Spaniards who registered as jobless rose by nearly eight percent, meaning that 282,891 people were rendered out of work as the country imposed strict restrictions to contain the coronavirus outbreak. The figures published by the ministry on Tuesday are lower than the ones seen in March, when unemployment rose by over nine percent.

Those working in food and beverage services have felt most of the pain of the coronavirus-induced crisis, with over 720,000 losing their jobs, while workers in the retail and wholesale trade industries were also hit hard, along with accommodation services.

April’s filings have pushed unemployment to its highest figure in nearly four years, according to AP. At the same time, the country’s Minister of Labor Yolanda Diaz said the benefits paid by the government to nearly 5.2 million people amounted to a “historical records.”

Last week, Spain’s economy minister said that the nation’s economy is set to fall even deeper than it did amid the Great Recession of 2008-2013, partly confirming predictions made by the International Monetary Fund (IMF). The ministry expects that the country’s GDP will contract by 9.2 percent this year. According to the worst-case scenario released earlier by Spain’s central bank, the country’s economy may dive by 12.4 percent in 2020 if the Covid-19 lockdown lasts up to 12 weeks.

Spain, the worst affected country in Europe by number of coronavirus infections, started easing restrictions after nearly two months of lockdown on Sunday. Some small businesses, including shops and salons, started reopening on Monday, while still observing strict disease control protocols.

Spain’s economy may dive 12.4% this year

The economy of Spain could contract between 6.8 percent and 12.4 percent in 2020 if the Covid-19 lockdown lasts eight or 12 weeks, the Bank of Spain said last month.

According to the central bank, which charted various economic scenarios, the disruption suffered by the Spanish economy was, as in the case of other countries, of “considerable severity.”

The regulator added that there was still great uncertainty. “The results of the different scenarios point to reductions in Spanish GDP in 2020 unprecedented in recent history,” it said.

In any case, an upturn is expected to begin in the second half of the year, leading to a “remarkable recovery” in 2021, with a projected growth of between 5.5 percent and 8.5 percent.

The IMF also predicted that Spain is facing an economic crisis even deeper than the one it experienced in 2008 in the wake of the global financial crisis.

The IMF has warned the country’s unemployment rate could climb to 20.8 percent in the wake of the coronavirus lockdown.

France facing worst economic downturn since WWII

France is likely to see its worst post-war economic slowdown this year due to the coronavirus pandemic, much worse than it faced in 2009 after the global financial crisis, said the country’s Finance Minister Bruno Le Maire.

“We will probably be at more than -2.2 percent [seen] in 2009. That shows the magnitude of the economic shock we are facing,” he told the Senate in a hearing by teleconference on Monday.

The French government estimated in March in an emergency budget update that the economy would contract by one percent this year, but has since indicated that it would have to revise that figure.

As part of its crisis measures, the government has prepared a €45 billion ($50 billion) package – two percent of GDP – to pay businesses not to lay off workers. Deadlines for taxes and loan repayments have also been delayed, while another €300 billion in state-guaranteed loans are being extended to any struggling company that needs them.

France has been pushing for a common EU fund to help Europe through the coronavirus crisis. Proposed by Le Maire, the fund would come on top of other multibillion-euro rescue packages being negotiated by the EU and eurozone institutions.

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