The Spring 2021 Economic Forecast released by the European Commission projects that the EU economy will expand by 4.2% in 2021 and by 4.4% in 2022. The euro area economy is forecast to grow by 4.3% this year and 4.4% next year. This represents a significant upgrade of the growth outlook compared to the Winter 2021 Economic Forecast which the Commission presented in February. Growth rates will continue to vary across the EU, but all Member States should see their economies return to pre-crisis levels by the end of 2022.
The Forecast takes into account the unprecedented shocks to European economies as a result of the Coronavirus pandemic, with an optimistic outlook for the resumption of economic growth as vaccination rates increase and containment measures ease. In 2020, the EU economy contracted by 6.1% and the euro area economy by 6.6%. Although in general, businesses and consumers have adapted to cope better with containment measures, some sectors – such as tourism and in-person services – continue to suffer.
Public investment, as a proportion of GDP, is set to reach its highest level in more than a decade in 2022. This will be driven by the Recovery and Resilience Facility (RRF), the key instrument at the heart of NextGenerationEU.
Labour market conditions are slowly improving after the initial impact of the pandemic. Employment rose in the second half of 2020 and unemployment rates have decreased from their peaks in most Member States.
Public support schemes, including those supported by the EU through the SURE instrument, have prevented unemployment rates from rising dramatically. However, labour markets will need time to fully recover as there is scope for working hours to increase before companies need to hire more workers.
The unemployment rate in the EU is forecast at 7.6% in 2021 and 7% in 2022. In the euro area, the unemployment rate is forecast at 8.4% in 2021 and 7.8% in 2022. These rates remain higher than pre-crisis levels.
Inflation will vary significantly over the course of this year as the assumed energy prices and changes in the VAT rates generate noticeable fluctuations in the level of prices compared to the same period last year.
The Foreacast shows that Malta’s economy should see a robust recovery in 2021 and 2022, provided that the tourism sector opens up safely. The recovery is expected to be driven by a rebound in tourism-related services exports, household consumption and investment. Given the supportive fiscal policy stance, the general government deficit is set to widen further in 2021 before improving in 2022 on the back of an accelerating recovery and a winding-down of fiscal support measures. The dedicated section of the Forecast for Malta please go to page 84 (link to Forecast below).