The euro zone economy will contract by a record 7.7% this year because of the COVID-19 pandemic, inflation will almost disappear and public debt and budget deficits will balloon, the European Commission forecast on Wednesday.
As the economy contracts this year, consumer prices will almost stagnate, the Commission forecast. The inflation rate will slow to 0.2% in 2020, before accelerating to 1.1% next year, when the euro zone is to return to growth of 6.3%. Investment will plunge 13.3% this year, it said.
With government spending the main fuel for the economy, the effort to keep economies alive will widen budget gaps in the euro zone to an aggregate 8.5% of GDP this year from 0.6% last year, before the deficit shrinks again to 3.5% in 2021. “Proposals for the next EU budget – which will encompass a recovery fund – are still being drafted. The details, particularly on size and breakdown of loans/grants, will be key,” the bank said.
FILE PHOTO: European Union flags fly outside the European Commission headquarters in Brussels, Belgium, February 19, 2020. Picture taken February 19, 2020 REUTERS/Yves Herman
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