Economic and Financial Affairs

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.

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.

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.

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

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.

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.