After a strong rebound in 2021, real GDP is projected to grow by 2.6% in 2022 and 1.6% in 2023. Growth is set to be significantly damped in the first half of 2022 by the war in Ukraine and the lockdowns in China. These factors are also pushing inflation up further, to a projected 7% this year. This is weighing on households’ consumption and increasing uncertainty. With the Russian oil embargo from 2023 pushing oil prices up, growth is expected to remain subdued in 2023, while inflation is set to decline only gradually. Risks to economic activity remain tilted to the downside: severe disruptions in energy, notably gas, supply would hit growth in Europe while pushing inflation further up.
The COVID-19 pandemic plunged the EU into its worst-ever recession and risks increasing inequalities, notably between regions. Thanks to a bold and innovative policy response, including a common instrument to finance national recovery plans (Next Generation EU), growth is rebounding, but ambitious reforms will be essential to heal the scars of the pandemic and succeed in the green and digital transitions.
The COVID-19 pandemic forced most euro area economies into repeated lockdowns in 2020 and early 2021 that lead the euro area into its deepest recession on record in 2020. The policy reaction to the crisis was large and rapid.
In light of the COVID-19 crisis, the top immediate policy priority is to ensure efficient use of Next Generation EU, a recovery plan combining loans and grants of about 5.5% of EU27 2019 GDP to support member states’ recovery policies. Successful roll-out and implementation of this support will be crucial to reinvigorate economic growth across the European Union, boost digitalisation and innovation, bolster resilience to future shocks and achieve climate and inclusiveness objectives.
©Shutterstock/Anton PetrusRead full country note
2021 Structural Reform Priorities