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EU economy faces growing headwinds despite pandemic recovery, Brussels warns

Supply chain bottlenecks and rising energy costs threaten to slow the EU’s recovery from the pandemic despite a recent acceleration in growth, the European Commission has warned.

Economic growth in the EU and the euro area is set to reach 5% this year, the committee said in its autumn report on the economy, faster than the 4.8% pace it had previously forecast.

But he warned of “growing headwinds” due to logistics bottlenecks, tense supply chains and raw material shortages, which are plaguing Germany, Europe’s largest economy, and others. manufacturing centers.

Brussels also fears that an acceleration in Covid-19 cases could erode the EU’s economic prospects, especially in countries with low vaccination rates.

The balance of risks weighing on growth had “tilted downwards,” the commission warned.

“The European economy is moving from recovery to expansion, but it is now facing headwinds,” said Paolo Gentiloni, European Commissioner for the Economy. “There are three main threats to this positive image: a marked increase in Covid cases, more acute in areas where vaccinations are relatively low; an increase in inflation, mainly due to soaring energy prices; and supply chain disruptions that plague many sectors.

The EU’s strong economic rebound follows its unprecedented decline in 2020, with post-Covid reopenings allowing higher consumer spending and freer travel. Meanwhile, public investment is on track to reach its highest levels in a decade.

The recovery in demand has been so strong that supply is struggling to keep up.

The report highlighted logistics disruptions, semiconductor shortages and supply issues for a range of commodities and raw materials as key constraints for industrial recovery. EU surveys suggest that around 43 percent of the manufacturing sector has been affected by “severe shortages” of material or equipment, while service companies are much less affected.

The overall growth outlook is expected to remain strong, with the EU and euro area expected to maintain a 4.3% expansion in 2022. However, the outlook was more unpredictable, the commission said.

The industrial heartland of the EU is at risk of being hit hardest by component and material shortages. The German economy is expected to grow 2.7% this year, slower than the overall EU rate, before accelerating to 4.6% in 2022.

France, the EU’s second-largest economy, will grow 6.5% this year and 3.8% in 2022, according to the commission. Italy will see growth of 6.2% in 2021 and 4.3% next year.

Sectors where activity was growing the most were starting to experience labor shortages, the commission found. Around 3.4 million jobs are expected to be created in 2022 and 2023, reducing the unemployment rate in the EU to 6.5% in 2023, from 7.1% this year.

Overall, however, the report found no signs of increasing wage pressures resulting from wage negotiations. In the second quarter of this year, negotiated wages in the eurozone rose at a rate of less than 2%, more moderately than in the run-up to the Covid recession, the commission said.

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