Euro zone growth forecasts lowered as coronavirus restrictions drag – CNBC

A cyclist rides past the Eiffel Tower following a light overnight snowfall.

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LONDON — The European Commission has turned more negative on its prospects for the euro zone’s economy, projecting a lower growth rate for the region in 2021 as governments grapple with new variants of coronavirus.

The Brussels-based institution expects the 19-member region to grow by 3.8% this year. In November, it had forecast a 4.2% GDP (gross domestic product) rate for 2021.

The latest forecasts come at a tricky time for the European Union as its Covid vaccine rollout faces issues around production, supply and red tape. At the same time, European governments are concerned about mutations of the virus that are deemed more contagious. The longer the health emergency drags, the longer EU countries have to extend social restrictions and lockdowns, which takes their toll on the economy.

“We remain in the painful grip of the pandemic, its social and economic consequences all too evident. Yet there is, at last, light at the end of the tunnel,” Paolo Gentiloni, commissioner for economic affairs said in a statement on Thursday in relation to vaccine rollouts.

Going forward, the European Commission expects 2022 GDP in the euro area to reach 3.8%, having projected a 3% GDP rate for next year in November.

Looking at individual countries, Germany is seen growing by 3.2% in 2021, having contracted 5% in 2020. France on the other hand is expected to see a GDP rate of 5.5% this year, after dropping more than 8% in 2020.

The European Commission’s forecasts assume that social restrictions will be slightly eased in the second quarter of 2021, but that there will nonetheless be some sectoral measures still in place in 2022.