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  05 November 2020  
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Economic and Financial Affairs

ECFIN E-news 226

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Autumn 2020 Economic Forecast: Rebound interrupted as resurgence of pandemic deepens uncertainty
Banner of European Economic Forecast © European Union, 2020

The Autumn 2020 Economic Forecast projects that the euro area economy will contract by 7.8% in 2020 before growing 4.2% in 2021 and 3% in 2022.

The forecast projects that the EU economy will contract by 7.4% in 2020 before recovering with growth of 4.1% in 2021 and 3% in 2022. Compared to the Summer 2020 Economic Forecast, growth projections for both the euro area and the EU are slightly higher for 2020 and lower for 2021. Output in both the euro area and the EU is not expected to recover to its pre-pandemic level in 2022. Due to the coronavirus pandemic, economic activity in Europe suffered a severe shock in the first half of the year and rebounded strongly in the third quarter as containment measures were gradually lifted. However, the resurgence of the pandemic in recent weeks is resulting in disruptions as national authorities introduce new public health measures to limit its spread. Furthermore, the economic impact of the pandemic has differed widely across the EU and the same is true of recovery prospects. They reflect the spread of the virus, the stringency of public health measures taken to contain it, the sectoral composition of national economies and the strength of national policy responses. The epidemiological situation means that growth projections over the forecast horizon are subject to an extremely high degree of uncertainty and risks. On the upside, however, NextGenerationEU, the EU's economic recovery programme, including the Recovery and Resilience Facility, is likely to provide a stronger boost to the EU economy than projected, as national plans are put in place.

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See also Autumn 2020 Economic Forecast: Rebound interrupted as resurgence of pandemic deepens uncertainty
Viewpoint
Paolo Gentiloni, European Commissioner for the Economy
Paolo Gentiloni, European Commissioner for the Economy © European Union, 2020

“After the deepest recession in EU history in the first half of this year and a very strong upswing in the summer, Europe's rebound has been interrupted due to the resurgence in COVID-19 cases. Growth will return in 2021 but it will be two years until the European economy comes close to regaining its pre-pandemic level. In the current context of very high uncertainty, national economic and fiscal policies must remain supportive, while NextGenerationEU must be finalised this year and effectively rolled out in the first half of 2021.”

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Commission disburses €17 billion under SURE to Italy, Spain and Poland
Sure infographics © European Union, 2020

The European Commission has disbursed a total of €17 billion to Italy, Spain and Poland in the first instalment of financial support to Member States under the SURE instrument.

As part of the operations on 27 October, Italy received €10 billion, Spain €6 billion, and Poland €1 billion. Once all SURE disbursements have been completed, Italy will have received a total of €27.4 billion, Spain €21.3 billion and Poland €11.2 billion. This support, in the form of loans granted on favourable terms, will help these Member States to cover costs directly related to the financing of national short-time work schemes, and other similar measures that they have put in place in response to the coronavirus pandemic, particularly for the self-employed. The SURE instrument can provide up to €100 billion in financial support to all Member States. The Council has so far approved €87.9 billion in financial support under SURE to 17 Member States, based on the Commission's proposals. The next disbursements will take place over the coming months, following the respective bond issuances. The disbursements follow last week's successful inaugural social bond issuance by the Commission to finance the instrument.

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See also Commission disburses €17 billion under SURE to Italy, Spain and Poland
Preliminary flash estimate for Q3 of 2020: GDP up by 12.7% in the euro area and by 12.1% in the EU
Eurostat infographics © European Union, 2020

In the third quarter 2020, seasonally adjusted GDP increased by 12.7% in the euro area and by 12.1% in the EU, compared with the previous quarter, according to a preliminary flash estimate published by Eurostat, the EU statistical office.

These were by far the sharpest increases observed since time series started in 1995, and a rebound compared to the second quarter of 2020, when GDP had decreased by 11.8% in the euro area and by 11.4% in the EU. Compared with the same quarter of the previous year, seasonally adjusted GDP has, however, decreased by 4.3% in the euro area and by 3.9% in the EU in the third quarter of 2020, which represents a partial recovery after -14.8% and -13.9% respectively in the previous quarter. Among the Member States for which data are available for the third quarter 2020, France (+18.2%) recorded the highest increase compared to the previous quarter, followed by Spain (+16.7%) and Italy (+16.1%). Lithuania (+3.7%), Czechia (+6.2%) and Latvia (+6.6%) recorded the lowest increases. While a rebound was observed for all publishing countries compared to the second quarter, the year-on-year growth rates were still negative. These preliminary GDP flash estimates are based on data sources that are incomplete and subject to further revision. The next estimates for the third quarter of 2020 will be released on 13 November.

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See also GDP up by 12.7% in the euro area and by 12.1% in the EU
Annual Research Conference: Europe’s quest for new models of sustainable growth and convergence
Banner of Annual Research Conference © European Union, 2020

The European Commission is organising the Annual Research Conference on 13 November 2020.

This year, DG ECFIN’s flagship academic event will be held entirely online and will gather participants from research and policy-making circles across the world to discuss Europe’s quest for new models of sustainable growth and convergence. Paolo Gentiloni, Commissioner for the Economy, will open the discussions with a conversation with Maria Demertzis on The socio-economic agenda after coronavirus. Two panel debates on Transition challenges in going grey, green and digital (with Angela Koeppl, Margit Schratzenstaller and Jens Suedekum) and United in diversity? Convergence patterns in Europe reconsidered (with Roberta Capello and Robert Stehrer) will follow. Dani Rodrik will deliver the Distinguished ECFIN Lecture on Globalisation in the “new normal”. The full programme is available on the website. If you are interested to join the conference, please register here to receive the details on how to participate. The deadline for registration is November 10. #EUARC20

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See also REGISTRATION FORM - Annual Research Conference 2020 Europe's quest for new models of sustainable growth and convergence 13 November 2020
Advancing the EU social market economy: adequate minimum wages for workers across Member States
Read-out of the weekly meeting by Valdis Dombrovskis © European Union, 2020

The Commission proposed an EU Directive on 28 October to ensure that workers in the Union are protected by adequate minimum wages allowing for a decent living wherever they work.

When set at adequate levels, minimum wages not only have a positive social impact, but also bring wider economic benefits as they reduce wage inequality, help sustain domestic demand and strengthen incentives to work. Adequate minimum wages can also help reduce the gender pay gap, since more women than men earn a minimum wage. The proposal also helps protect employers that pay decent wages to workers by ensuring fair competition. The current crisis has hit sectors with a higher share of low-wage workers particularly hard. These include the cleaning, retail, health and long-term care and residential care sectors. Ensuring a decent living for workers and reducing in-work poverty is not only important during the crisis but also essential for a sustainable and inclusive economic recovery.

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See also Advancing the EU social market economy: adequate minimum wages for workers across Member States
Investment Plan: EU invests in drug research, AI, and blockchain technology, as well as wind energy and SMEs
Plant growing © European Union, 2020

The European Investment Bank (EIB) announced on 30 October that it will provide Minoryx Therapeutics with up to €25 million to support development of breakthrough therapies in orphan neurodegenerative diseases for which there are currently no approved drugs available.

The EIB financing is backed by the European Fund for Strategic Investments (EFSI), the financial pillar of the Investment Plan for Europe, the Juncker Plan. On 28 October, the European Investment Fund (EIF) and the Commission announced the first 6 Venture Capital funds under the InnovFin Artificial Intelligence and Blockchain pilot. New agreements with tech equity funds in Austria, Finland, Germany, Luxembourg and the Netherlands are expected to bring €700 million to tech companies across Europe. Meanwhile, the EIB and Landesbank Baden-Württemberg are providing PLN 184 million (approximately €42 million) each to finance the construction and operation of four wind farms in Poland's Wielkopolskie region. In Spain, the EIB is joining forces with Santander to provide financing on favourable terms to Spanish SMEs and mid-caps affected by the economic impact of COVID-19. The EIB and the EIF will subscribe several tranches of a synthetic securitisation of an SME loan portfolio originated by Banco Santander, enabling the Spanish bank to provide more than €900 million in financing to support SMEs.

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See also Investment Plan for Europe
Publications
EU Candidate Countries’ & Potential Candidates’ Economic Quarterly (CCEQ) – 3rd Quarter 2020
EU Candidate Countries’ & Potential Candidates’ Economic Quarterly (CCEQ) – 3rd Quarter 2020

An overview of economic developments in candidate and pre-candidate countries.

 
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Is the Irish Phillips Curve broken?

This Discussion Paper focusses on inflation in Ireland.

 
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Quarterly Report on the Euro Area. Volume 19, No 2 (2020)

This edition of the QREA takes a close look at consumption smoothing and the role of banking integration; structural change in labour demand and skills mismatches; and implicit pension liabilities.

 
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