European Commission Upgrades GDP Forecasts For Eurozone

The European Commission has upgraded its growth forecasts for the Eurozone economy, expecting it to rebound strongly from the pandemic-inflicted downturn in 2021 and continue to grow into the next year. After contracting by 6.4% in 2020, the Commission expects the Eurozone economy to post a 5% growth in 2021, which could ease lower to 4.3% in 2022 and then to 2.4% by 2023.

This is significantly higher estimate than the one made back in May 2021, when it expected the economy to grow by only 4.3%. Meanwhile, the Commission also shared inflation forecasts for the current year and the coming years, expecting inflation to surge from 0.3% in 2020 to 2.4% in 2021, before dipping to 2.2% in 2022 and then to 1.4% by 2023.

The strong rebound from 2020’s dismal performance as well as the slow pace of dialing back on stimulus efforts could see Eurozone’s budget deficit dip from 7.2% last year to 7.1% in the current year. Sustained economic recovery from the COVID-19 pandemic can further reduce budget deficit to 3.9% next year and then to 2.4% in 2023. In more encouraging news, the European Commission also expects public debt to fall from 100% of GDP in 2021 to 97.9% next year and to 97% the year after.

European Commission Vice President Valdis Dombrovskis notes, “Our measures to cushion the blow of the pandemic and to ramp up vaccinations across the EU have clearly contributed to this success.” However, downside risks to the economic recovery still remain, on account of rising energy prices and supply chain disruptions, as well as uneven rollout of the COVID-19 vaccine across EU countries.

Impact on EUR/USD

Despite these optimistic projections, the common currency fails to find support, with EUR/USD extending the bearish moves from earlier this week as traders focus on soaring inflation in the US and a possible advance in the timeline for Fed’s rate hike. At the time of writing, EUR/USD is trading at around $1.144.