European Commission Expects GDP to Drop 8.7%

The European Commission cut its gross domestic product forecast for 2020. Its economists expect an 8.7% drop this year. This is a downward revision of its last forecast. GDP is expected, the body said, to rebound by 6% in 2021. The EC described it as the largest contraction since World War II.

The group handicapped the greatest risk:

Given the unusual uncertainty surrounding economic projections, this forecast continues to be based on a number of critical assumptions. Most importantly, it is assumed that containment measures in the EU will be gradually further lifted and no major second wave of infections will trigger new generalised restrictions. However, continued social distancing measures are factored in with repercussions on sectors requiring interpersonal contact. The fiscal and monetary policy measures credibly announced up to the cut-off date are expected to support the recovery and prevent large-scale bankruptcies and layoffs. Still, insolvencies and employment losses across Member States are likely to occur. At the global
level, the still rising rate of infections, particularly in the US and emerging markets, has deteriorated the global outlook and is expected to act as a drag on the European economy.

Many medical experts do believe there will be a second wave. The current one badly crippled some of the member economies where it hit hardest, primarily Italy and Spain. Another wave would push many people out of work for months, if no longer.

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The group also worried about conditions over the past two or three weeks:

Nevertheless, the global economic outlook remains subject to extraordinary uncertainty as the
pandemic continues to progress, with the number of daily new infections globally still increasing and
many containment measures still in force. The number of active cases globally has been growing
at an average daily rate of around 1% over the past month. High rates of new infections are
increasingly concentrated in a number of emerging market economies and the number of cases in the
US has recently re-accelerated.

All in all, the forecast could hardly be less encouraging.

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