An alternative look at the EU Spring 2021 Economic Forecasts

Most economic commentators waxed lyrical about the Spring 2021 Economic Forecasts made by the Economic Commission. Bloomberg titled “Euro-Area GDP raised as prospects brighten” while The Financial Times exclaimed “Vaccination campaign helps bloc recover following blow delivered by the pandemic”.

The economists at the European Commission, observing an uptake in vaccination efforts combined with progress on EU funding, as well as the tremendous boost given to the US economy by the Biden administration, upgraded economic growth forecasts significantly. For Malta, back in Autumn 2020, they were forecasting 3% growth in 2021. Now they believe growth will be 4.6%, that is one and a half times their original forecast. For 2022, the European Commission sees Malta growing by more than 6%, or one and a half times the EU average. Of all EU countries, by end 2022 only Italy will still have an economic output below its pre-pandemic level. In the previous round, very few EU countries were forecast to have recovered by 2022.

Yet, GDP is hardly the be-all and end-all of economic wellbeing. To give the starkest example, Ireland. The Celtic tiger despite the pandemic saw its GDP rise by a healthy 3.4%, and despite that, employment fell by 1.5%. Similarly, in 2021 its GDP is forecast to rise by 4.6%, but employment will drop a further 3.5%. Despite two healthy years of GDP growth, the Irish unemployment rate will double to nearly 11%.

When analysing economic forecasts, one has to look beyond the headline growth figure, if one wants to understand the social impact of economic developments. The crisis has led to a drop in employment of 3.1 million persons. Whereas in their Autumn 2020 forecasts, Commission economists had forecast that in 2021, employment would bounce back by 1.8%, few have noticed that their new set of forecasts project a 0% change in employment this year. For most Europeans who lost their jobs, the new set of economic forecasts hold no satisfaction.

For most Europeans who lost their jobs, the new set of economic forecasts hold no satisfaction.

In fact, an analysis of the Spring 2021 Economic Forecasts indicates that across most of the EU, employment levels at the end of 2022 will still be below those at the end of 2019. More than a million of those who were working in 2019 will still be out of a job by end of 2022. For these persons, the “rolling up sleeves” slogan used to describe these Economic Forecasts will sound quite shallow.

Luckily in the case of Malta, as can be seen in the Chart, the Commission forecasts confirm that it is not just GDP that will be rising above its pre-pandemic level. The Maltese economy will have created employment for an additional 14,000 persons over and above the amount already working at end 2019. Only Luxembourg will see a relative increase that is marginally higher than that forecast for Malta, 5.7%. By contrast in Belgium, the seat of the Commission, employment will still be 5.3% below the pre-pandemic level. 

The Spring 2021 forecasts revised downwards the unemployment rate projections for Malta from 4.7% to 4.3% for 2021 and from 4.1% to 3.8% for 2022. Furthermore, whereas earlier forecasts had anticipated that after taking into account inflation, take-home pay of Maltese workers would rise by just 0.4% this year, and then fall by 0.8% next year, now the Commission experts forecast growth of 0.9% in both years.

Malta’s economic recovery appears set to benefit workers as against the recovery projected for the EU as a whole. In fact, domestic demand in the EU in 2022 will barely be at pre-pandemic levels, whereas in Malta private consumption and investment will be steaming ahead.

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