Due to the outburst of the coronavirus pandemic the European Union has experienced great losses this year. Although the policy response was quick at national levels, a deep recession is expected because of the slow lifting of the lockdown measures.

"The economic impact of the lockdown is more severe than we initially expected. We continue to navigate in stormy waters and face many risks, including another major wave of infections. If anything, this forecast is a powerful illustration of why we need a deal on our ambitious recovery package, NextGenerationEU, to help the economy. Looking forward to this year and next, we can expect a rebound but we will need to be vigilant about the differing pace of the recovery. We need to continue protecting workers and companies and coordinate our policies closely at EU level to ensure we emerge stronger and united.”, says Valdis Dombrovskis - executive Vice-President for an Economy that works for People.

After the Spring Forecast failed to foresee the massiveness of the impact of the virus on economic activity, a new Summer 2020 Economic Forecast was released. It is expected that the EU economy will contract by 8.3% in 2020 and grow by 5.8% in 2021.

Commissioner for the Economy Paolo Gentiloni says: “Coronavirus has now claimed the lives of more than half a million people worldwide, a number still rising by the day - in some parts of the world at an alarming rate. And this forecast shows the devastating economic effects of that pandemic. The policy response across Europe has helped to cushion the blow for our citizens, yet this remains a story of increasing divergence, inequality and insecurity. This is why it is so important to reach a swift agreement on the recovery plan proposed by the Commission – to inject both new confidence and new financing into our economies at this critical time.”

According to data collected for May and June, it is suggested that the worst of the pandemic may have already passed. Despite the fact that all Member States were hit, resulting in the recession in their economies, it is expected that countries will start to recover in the second half of the year.

The outlook for inflation is 0.3% in 2020 and 1.1% in 2021 for the EU as well as 0.3% in 2020 and 1.1% in 2021 in the euro area as measured by the Harmonised Index of Consumer Prices (HICP). What is more, oil and food prices have risen more than expected despite the VAT reductions and other measures taken in some Member States.

It is still unknown if future lockdown measures will be necessary but the forecast assumes that they will ease and that there will not be a second wave of infections. The stability of financial markets is currently at great risk. Additionally, the future trading relationship between the United Kingdom and the European Union (after Brexit) is endangered as it has not secured an agreement, which could result in lower growth for the UK.

One of the few upside risks is the possibility of an early availability of a vaccine against COVID-19 although no official information on the topic has been released yet.

Also, the Commission has proposed a recovery plan centred on the new instrument NextGenerationEU, an investment for the next generation, where the EU budget is uniquely placed to power a fair socio-economic recovery, repair and revitalize the Single Market, to guarantee a level playing field, and support the urgent investments, in particular the digital transitions for a prosperous future Europe. Even though this proposal has not been agreed yet, it would also be considered as an upside risk.

This forecast takes into consideration information up until and including 30 June and is entirely based on a set of technical assumptions concerning interest rates, commodity prices and exchange rates.

The European Commission publishes two comprehensive forecasts – spring and autumn – and two interim forecasts – winter and summer – annually and its next economic forecast will be the

Autumn 2020 Economic Forecast which is scheduled for November this year.