EU sees deeper recession, less steep rebound for eurozone

BRUSSELS: The eurozone economy will drop deeper into recession this year and rebound less steeply in 2021 than previously thought, the European Commission forecast on Tuesday, with France, Italy and Spain struggling the most due to the Covid-19 pandemic.

The downbeat assessment of Europe's economy comes amid concern the US recovery may also be faltering as a surge of new coronavirus infections prompts states to delay and in some cases reverse plans to let stores reopen and activities resume.

The EU executive said the 19-nation single currency area would contract by a record 8.7% this year before growing by 6.1% in 2021. In early May, the Commission had forecast a 2020 downturn of 7.7% and a 2021 rebound of 6.3%.

The Commission said it had revised its forecasts because the lifting of Covid-19 lockdown measures in euro zone countries was proceeding less swiftly than it had initially predicted.

The EU executive significantly cut its earlier forecasts for France, Italy and Spain, all hit hard by the pandemic, and now expects now downturns in excess of 10% this year in each.

In Germany, the euro zone's largest economy, where widespread testing has helped limit fatalities, the Commission moderated its estimates both of 2020's downturn - to -6.3% from -6.5% forecast in May - and next year's rebound.

Economics Commissioner Paolo Gentiloni told a news conference that to reduce risks of a second recession EU fiscal rules could remain frozen even after growth returns next year.

Requirements that states keep fiscal deficits below 3% of gross domestic product and reduce high debt have been suspended during the pandemic, in an unprecedented move.

Gentiloni, a centre-left former Italian prime minister, said the rules may be reactivated only when the bloc's output returns at least to 2019 levels. But no decision has yet been made and the matter remains controversial.

The Commission also said its inflation forecasts were little changed, at 0.3% this year and 1.1% in 2021.

The new growth figures indicate an economic recovery gathering momentum in June, although it is based on a number of "critical" assumptions, with "exceptionally high risks".