The European Commission's latest economic outlook is forecasting faster economic growth than previously predicted. Real Economy takes a closer a look.
How is Europe’s economy looking?
Europe’s economy is on track to grow faster than expected and is moving from recovery to growth. The European Commission’s autumn forecast shows GDP in the EU and the eurozone area reaching 5 percent by the end of 2021, higher than the previous forecast of 4.8 percent. It is projected to grow by 4.3 percent in 2022 and by 2.5 percent for the EU and 2.4 percent for the eurozone in 2023.
Are there any concerns about the economy?
The economic recovery depends heavily on how the Covid-19 pandemic develops. The surge in cases has shaken the markets and new government restrictions could impact economic activity, while businesses risk being hit by shortages and supply chain disruptions.
The European Commission has described Europe’s economy as facing three ‘headwinds’: a marked increase in Covid cases, particularly in areas where vaccinations are relatively low; rising inflation, driven largely by a spike in energy prices; and supply chain disruptions weighing on numerous sectors.
What is the issue with supply chains?
As the economy rebounds strongly, companies are struggling to meet a post-pandemic snap-back in customer demand. This is causing inflation to shoot up as bottlenecks emerge in global supply chains.
An estimated 43% of the EU manufacturing sector and 15% of the EU construction sector has been affected by severe shortages.
The European Commission has raised its inflation forecast for the eurozone to 2.4 percent from 1.7 percent in 2021 and to 2.2 percent from 1.3 percent in 2022.
It also warns that price pressures may turn out higher than forecast if supply constraints persist and wage-increase demands exceed productivity and are passed on to consumers.