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On Wednesday, May 6, the European Union (EU) released its Spring 2020 Economic Forecast, which concluded that the 27-country alliance would “experience a recession of historic proportions” with an uncertain recovery.
This recession is a result of the COVID-19 pandemic that has not only forced much of the continent into lockdown, but has decimated multiple industries.
The member states of the EU are unified by trade and freedom of movement for its citizens, but the economic forecast for the separate countries is more dire for some than others, especially those most reliant on tourism. At the same time, the EU is the largest trading bloc in the world, so its misfortunes are likely to be felt on a global scale.
How dire will the EU recession be?
In Wednesday’s Economic Forecast, it was projected that the EU’s economy would contract by 7.5% before the end of the year. This news comes as the coronavirus pandemic continues to kill thousands of people across the European continent every week.
Nonetheless, many of the hardest hit countries are currently testing the waters for a reopening of their economies.
The economic news was even more dire for the 19 countries within the EU who share a single currency, the Euro. The economies of these “Euro area” countries are expected to experience a record contraction of 7.75%.
The forecast expects growth to return to the European economies in 2021, albeit at a more subdued level than originally projected last year. The EU economy is now expected to grow by roughly 6% in 2021, a downward revision of 9% according to the spring forecast.
The forecast warned that “both the drop in output in 2020” and “the strength of the rebound in 2021” will vary considerably on a country-by-country basis. Yet, due to their interconnected economies, “the dynamics of the recovery in each member state will also affect the strength of the recovery of other member states.”
Even with the EU taking drastic measures to confront the crisis, including a €540 billion aid package (equivalent to US$590 billion), its economy is unlikely to make up this year’s losses in 2021.
Tourism in Europe
The Spring 2020 Economic Forecast further noted that the most economically vulnerable EU member states were “Those with a high proportion of workers on short-term contracts and those where a large proportion of the workforce depend on tourism.”
It appears unlikely that the European summer tourism season is salvageable as some of the most heavily affected countries are still under lockdown and are extending international travel restrictions. Tourism makes up 10% of the EU’s economy.
The countries along the Mediterranean Sea that would normally be experiencing a surge in tourists in the coming months are most likely to struggle in 2020. These include Spain, Italy, Greece and Croatia. However, assuming tourism rebounds in 2021, these nations are also positioned to have a more robust recovery.
With only 2 million visitors in March, Spain has already experienced a 64.3% decline in the arrival of tourists as compared to the same month last year. Prior to 2020, Spain had been on a seven-year streak of growth in tourism numbers.
Italy is projected to have a decline of about 28.5 million tourists for the full year.
Global trade partners
With most of the world having experienced an economic disruption due to the pandemic and lockdowns, national economies that are reliant on trade with other countries will have to be prepared for continued hardships even once their industries restart.
The World Trade Organization has predicted a substantial decline in global trade for 2020. Even with an optimistic outlook that necessitates “recovery starting in the second half of 2020,” global trade is expected to fall by 13% and not recover until 2022.
A far more pessimistic prediction, which projects both a steeper initial decline and slower recovery, puts the drop at 32%. In such a scenario, a full rebound could take many more years.
For the EU, the decline in global trade is estimated to be 9.7%, with a 9.2% drop in exports out of the union and an 8.8% drop in imports. Those numbers could be even greater if the economic downturn ends up being worse than current projections.
As a collective trade partner, the EU is one of the largest trading blocs in the world. In 2018, it was the United States’ largest trade partner.
COVID-19 in Europe
The first confirmed case of COVID-19 in an EU member state was discovered in Bordeaux, France on January 24, 2020. Since then, the disease has reached every European country, with Spain, Italy and the United Kingdom being among the hardest hit in terms of both confirmed cases and resulting deaths.
The EU has now had over 1.2 million confirmed cases and more than 140,000 coronavirus-related deaths since the crisis began. Those stats include the UK, which officially left the EU at the beginning of the year but is still in the midst of a transition period to fully leave the union.