BusinessEurope Economic Outlook Summer 2021 - Securing the recovery

The EU economy is picking up strongly, but the path back towards a full recovery after the COVID19-induced recession will be long and fraught with downside risks. The massive disruptions caused by the pandemic will take some time to shake off, with the long-term consequences continuing to be impacted by our present policy responses.  

Most positively, EU exports have bounced back strongly with our larger trading partners recuperating faster than Europe. But exports alone are not enough to return the European economy to its full potential; domestic consumption remains suppressed, and restoring spending is key to achieving a strong economic recovery. EU net exports increased strongly in the last quarter of 2020 and were well above the pre-crisis level, whilst private consumption remained well below.

The roll-out of vaccines has recently allowed EU governments to begin reopening our economies, meaning we can finally begin to see a way forward back towards pre-crisis levels of economic activity. For example, consumer confidence is back to its pre-crisis level, suggesting households see better times ahead and expect to resume more normal spending patterns.  The EU is now set to experience some restoration of its domestic demand in the second half of 2021. This should set the scene for a full economic recovery next year.  

Reflecting these developments, we expect exports to continue to spearhead the economic recovery, gradually complemented by domestic consumption picking up in the summer. Our expectation is for the EU27 economy to grow by 4.4% this year, followed by 4.6% next year.

Central economic forecasts, EU27

Policy recommendations

• While the increasing deployment of vaccination in the EU is now leading to the gradual withdrawal of restrictions on economic activity, it is essential that a premature unwinding of supportive measures to businesses and workers is avoided.
• Increased long-term growth and employment in the EU is dependent upon proper implementation of a wide range of structural reforms. It is crucial the EU institutions should ensure the national recovery and resilience plans are sufficiently linked to the implementation of structural country-specific reforms, as designated under the European Semester.
• In the medium term Member States must return to fiscally sustainable positions, reflecting the situation in the aftermath of the COVID-19 pandemic, and ensuring there is no "debt explosions" leading to negative financial market reactions.
• Lessons should be drawn from the Covid-19 crisis to ensure that sufficient safeguards are designed and implemented now to permanently guarantee the free flow of goods, people and services in the future.