Economic and Financial Affairs

Europe remains in the grip of the coronavirus pandemic. After strong growth in the third quarter of 2020, economic activity contracted again in the fourth quarter as a resurgence in the number of cases, together with the appearance of new, more contagious strains of the coronavirus, forced many Member States to reintroduce or tighten containment measures. With those measures still in place, the EU and euro area economies are expected to contract in the first quarter of 2021. Economic growth is set to resume in the spring and gather momentum in the summer, however, as vaccination programmes progress, containment measures gradually ease, and the global economy improves. The euro area and EU economies are expected to reach their pre-crisis levels of output earlier than anticipated in the Autumn 2020 Economic Forecast, largely because of the stronger than expected growth momentum projected in the second half of 2021 and in 2022. The economic impact of the pandemic remains uneven across Member States, however, and the speed of the recovery is also projected to vary significantly. Risks surrounding the forecast are mainly related to the evolution of the pandemic and the relative success of vaccination campaigns. NextGenerationEU, the EU's recovery instrument of which the centrepiece is the Recovery and Resilience Facility (RRF), could also fuel stronger growth than projected, since the envisaged funding has - for the most part - not yet been incorporated into this forecast.

The affirmative vote confirms the political agreement reached in December 2020. This marks an important step towards making €672.5 billion in loans and grants available to Member States to support reforms and investments. The RRF is the key instrument at the heart of NextGenerationEU, the EU's plan for emerging stronger from the COVID-19 pandemic. It will play a crucial role in helping Europe recover from the economic and social impact of the pandemic and will help to make the EU's economies and societies more resilient while securing the green and digital transitions. Approval by the European Parliament paves the way for the RRF to come into force in the second half of February. Member States will then be able to officially submit their national recovery and resilience plans, which will be assessed by the Commission and adopted by the Council. The recovery and resilience plans set out the reforms and public investment projects that will be supported by the RRF. The Commission is already engaged in intensive dialogue with all Member States on the preparation of these plans.

This is the first disbursement in 2021. As part of operations on 2 February, Belgium received €2 billion, Cyprus €229 million, Hungary €304 million, Latvia €72 million, Poland €4.28 billion, Slovenia €913 million, Spain €1.03 billion, Greece €728 million and Italy €4.45 billion. All nine Member States had already received financial support under SURE in 2020. These loans will assist Member States in addressing sudden increases in public expenditure to preserve employment. Specifically, they will help Member States cover the costs directly related to the financing of national short-time work schemes, and other similar measures that they have put in place as a response to the coronavirus pandemic, including for the self-employed. The disbursements follow the issuance of the fourth social bond under the EU SURE instrument, which attracted considerable interest among investors. The notable oversubscription was translated into favourable pricing terms, which the Commission is directly passing on to the benefitting Member States. With the latest disbursements, 15 Member States have received a total of €53.5 billion under the SURE instrument.

The EIB Group support announced on 1 February is backed by a guarantee from the European Fund for Strategic Investment (EFSI). The EU is also supporting the cultural and creative sectors in Denmark where the European Investment Fund (EIF) signed a €26 million guarantee agreement with REinvent Finance on 1 February. The guarantee agreement is backed by the EFSI and the Cultural and Creative Sectors Guarantee Facility (CCS GF). The European Investment Bank (EIB) concluded an agreement on 26 January to provide €20 million to finance the research, development and innovation (RDI) programme of Galenicum, a Barcelona-based pharmaceutical company. On 26 January, the EIF announced €45 million in investments into funds across Europe under the first ever equity funding programme for the EU blue economy sector. Meanwhile, Banque des Territoires, with the support of the European Investment Advisory Hub, has launched “S'GREEN+” to help municipalities participating in its City Centre Action programme roll out their climate change adaptation projects. In Denmark, the EIB signed a €12 million (DKK 89.3 million) loan agreement on 20 January with software provider Templafy that will help the company to further develop its business content solutions and drive its expansion across Europe. The EIB Group and BTV joined forces on 19 January to provide more than €400 million in additional lending to SMEs and mid-caps in Austria and Germany in response to COVID-19.

These declines, related to COVID-19 containment measures, follow a strong rebound in the third quarter of 2020 (+12.4% in the euro area and +11.5% in the EU) and the sharpest decreases since time series started in 1995 observed in the second quarter of 2020 (-11.7% in the euro area and -11.4% in the EU). According to a first estimation of annual growth for 2020, based on seasonally and calendar adjusted quarterly data, GDP fell by 6.8% in the euro area and 6.4% in the EU. These preliminary GDP flash estimates are based on data sources that are incomplete and subject to further revisions. Compared with the same quarter of the previous year, seasonally adjusted GDP decreased by 5.1% in the euro area and by 4.8% in the EU in the fourth quarter of 2020, after -4.3% in the euro area and -4.2% in the EU in the previous quarter. Among the Member States, for which data are available for the fourth quarter 2020, Austria (-4.3%) recorded the highest decrease compared to the previous quarter, followed by Italy (-2.0%) and France (-1.3%) while Lithuania (+1.2%) and Latvia (+1.1%) recorded the highest increases. The year on year growth rates were still negative for all countries.