EU Economic Forecasts: Positive Growth with Government Assistance Expected as COVID-19 Recedes from the Continent
A year and a half since the emergence of the COVID-19 pandemic, it is widely believed that the global economy is set for an unprecedented recovery from the current economic slowdown in 2021. The recovery is expected to be uneven across the globe, however major economies of the European Union (EU) are poised to record pre-pandemic growth levels.
Global economic growth is expected to increase to 5.6% this year, based on the strength of the major economies of the world such as the United States, China and the EU. Despite the fact that global GDP is expected to be 3.2% below pre-pandemic levels, growth for almost every region in the world has been revised upwards for 2021. The European Commission has predicted a positive change in real GDP for all major countries of the EU as illustrated below:
In 2020, the EU approved a financial support package of €750 billion for individuals and businesses negatively impacted by the pandemic known as “NextGenerationEU”. The main focus of this package is to invest in start-ups with high growth potential, which will ensure that the EU economies become technologically advanced and environment-friendly while promoting a digital and secure marketplace. This package also applies to already established small and medium-sized businesses. Since the onset of the pandemic, the EU has experienced a sharp increase in the number of start-ups. Working from home and reduced travel expenses resulted in unexpected savings for individuals, which propelled an interest in self-funded businesses. Coupled with government financial assistance, we can expect an improved success rate and profitability for start-ups and businesses respectively. The EU has approved funding of €1.2 billion in grants and loans to Cyprus. €157 million will be disbursed immediately, and further disbursements will be authorised based on the satisfactory fulfillment of milestones and targets.
In 2020, the European Central Bank (ECB) approved a €120 billion asset purchase program package which includes real estate assets. This is in addition to €20 billion a month it had previously committed to provide. This package aims to provide loans at below-market rates to small businesses and individuals who have been directly affected by COVID-19. Also, the “NextGenerationEU” package mentioned above has significantly loosened or removed all constraints and debt covenants associated with bank loans. This might result in an earlier recovery of GDP than predicted, given that more applicants will now be eligible for this relief.
Moreover, the European Commission (EC) recently announced a €250 billion package related to deep refurbishments and energy-efficient related reforms across all member states. This includes mandatory minimum energy performance standards, which will increase the affordability of green renovation through funding. Cyprus, under this plan, will devote 41% of its total allocation towards climate objectives such as the introduction of green taxation and subsidizing renewable energy equipment.
The relief packages mentioned above will generate a wide variety of opportunities for stakeholders in the real estate sector. Real estate owners will be able to tap the full potential of their buildings, tenants will be able to save on utility bills such as electricity and gas, and the government will be able to relax several carbon-based policies.
EU’s consumer sector worth €8.6 trillion contributes approximately 53% of the €16.4 trillion GDP3. Unanticipated lockdowns and travel restrictions caused a severe contraction of real household consumption, which fell by 8% in 2020 as compared to the previous year. However, the ECB is expecting a growth of 4.7% and 4.8% in 2021 and 2022 respectively as more consumers are vaccinated and the likelihood of future lockdowns diminishes.