On 11 November 2021, the Commissioner for Economy, Paolo Gentiloni, presented the Autumn 2021 Economic Forecast. Following the Covid-19 induced recession, the European economies are currently on a path towards economic recovery. Despite the projections being positive, the EU’s economic development is standing on shaky ground due to the uncertain development of the Coronavirus pandemic, global supply shortages and rising energy prices.
The Covid-19 pandemic has hit European economies hard: in 2020, the economic output of the EU 27 decreased by 5.9 %. Due to the vaccination progress and the gradual lifting of health policy measures in the EU, the European economy started to slowly recover in spring 2021. This trend has now been confirmed in the European Commission’s Autumn 2021 Economic Forecast.
The growth forecast: from recovery to expansion
According to the Commissioner for Economy, Paolo Gentiloni, “the European economy is moving from recovery to expansion”. In the third quarter of 2021, the European economy regained the pre-crisis level of its gross domestic product. A growth rate of 5 % for the EU has been forecasted for 2021. Growth rates of 4.3 % and 2.5 % are expected for 2022 and 2023, respectively. According to Gentiloni, over the coming years, the economic dynamics will probably be supported not least by investments and reforms for the socio-ecological and digital transformation within the framework of the Recovery and Resilience Facility. However, the economic expansion will vary in individual EU Member States: Whilst a massive GDP growth of 14.6 % has been forecasted for Ireland in 2021, the German economy will probably only grow by 2.7 %. According to the Autumn Forecast, a growth rate of 4.4 % is expected for Austria in 2021.
Labour market also expects a recovery
The Covid-19 pandemic had a disastrous impact on the labour market. By introducing short-time work models and the European SURE instrument, it has been possible to attenuate the strong increase of unemployment in some sectors. Currently, the economic recovery can also be felt on the labour market: In the EU, the second quarter of 2021 saw the creation of about 1.5 million jobs. The unemployment rate also decreased sharply and will reach an average value of 7.1 % in the EU-27 in 2021. According to the Autumn Forecast, a further decline to 6.7 % in 2022 and 6.5 % in 2023 is expected. Unemployment in Austria is expected to fall from currently 5 % to 4.5 % by 2023. However, it should be noted that the unemployment rate within the scope of the Autumn Forecast is calculated in accordance with the Eurostat method, and not on the basis of Public Employment Service registration data, which is common in Austria.
Rising energy prices temporarily push inflation
Compared to 2020, inflation in the Eurozone notably increased and reached a value of 2.8 % in the third quarter of 2021. In October, the inflation rate even rose to 4,1 %, thereby clearly exceedinf the European Central Bank’s inflation target of 2%. The current high inflation rate can be primarily explained by rising energy prices, and gas prices in particular. However, the Commission expects this to be only a temporary phenomenon and forecasts a decrease of the inflation rate to 2.2 % in 2022 and to 1,4 % in 2023, repsectively. Austria’s inflation rate is expected to fall to 2% by 2023.
Positive forecast stands on shaky ground
However, due to a variety of risks, the prospect of an economic recovery in Europe stands on shaky ground. It is particularly uncertain how the Covid-19 pandemic global will develop in the short and medium term, both globally and in Europe. Due to the current worsening epidemiologic situation, it is not possible to preclude the possibility of far-reaching health policy measures in the Member States. Further economic risks result from continuing shortages in global supply chains – for example in the semiconductor industry – and the resulting difficulties for the manufacturing sector. Whilst the EU Commission tries to overcome this issue by a Chip Act planned for 2022, such supply-side difficulties could until then – in contrast to the forecasted reduction in inflation – result in persistent high rates of inflation and increasing energy prices.