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EU and UK facing ‘Deeper and more uneven’ recession than previously predicted, EC Forecasts

Europe could plunge into a massive recession this year, as the UK economy shrinks by nearly 10%, the European Commission forecast on Tuesday.

Brussels predicts an 8.3% drop in GDP for the 27 European Union states in 2020, followed by a 5.8% rebound next year. While the eurozone is said to contract 8.7%, with a 6.1% increase in 2021.

Both outcomes would see worse declines and a weaker recovery than the economic downturn which was previously forecast by the commission in May.

The UK economy is predicted to fall by 9.75% in 2020, making it among the worst afflicted economies in Europe, although France, Spain, and Italy will suffer a worse collapse with GDP falling by 10.6%, 10.9%, and 11.2% respectively.

Germany – the EU’s largest economy – is forecast to see a 6.3% fall in GDP and the Netherlands will see a less severe downturn at – 6.8%, while Poland will be the least badly hit with a 4.6% fall.

“The risk of an increasing divergence was the rationale for proposing our common recovery plan and this risk appears to be materialising”, said Paolo Gentiloni, the EU commissioner for the economy.

“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”, he added.

The EU official claims there are a variety of risks that could lead to economic forecasts becoming more pessimistic, including a potential second wave of coronavirus which will result in a further lockdown.

Predictions pertaining to the UK economy were “predominantly to the downside”, according to the Commission. However, the current model presumes ongoing trade relations – which are poised to end on 31 December 2020.

The UK has passed the deadline for seeking an extension to the current transition period and talks between the two sides have stalled. After the UK leaves the EU’s single market and customs union, trading between the UK and the bloc will become more difficult, even if a deal is agreed.

The commission said that failing to reach a deal would be “an important risk” that would be “particularly negative for the UK”. The report was published just 10 days before EU leaders meet in Brussels to put together a €750 billion recovery package, following a Franco-German offer to provide support to countries worst affected.

While all members agree they want a plan finalized by summer, it continues to be resisted by the “frugal four” – Austria, Denmark, Sweden and the Netherlands, who oppose grants, instead preferring a loan scheme.

The European Commission claims that loans will increase the national debt burden while warning that a disproportionate economic recovery could leave certain members trailing behind in growth for years.