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EU economy faces growing headwinds despite pandemic recovery, warns Brussels

Provide chain bottlenecks and rising power prices threaten to constrain the EU’s restoration from the pandemic regardless of a latest pick-up in progress, the European Fee has warned.

Financial progress within the EU and euro space would attain 5 per cent this 12 months, the fee stated in its autumn report on the economic system, faster than the 4.8 per cent tempo it beforehand anticipated.

However it warned of “mounting headwinds” on account of logistics logjams, strained provide chains and shortages of uncooked supplies, that are hitting Germany, Europe’s largest economic system, and different manufacturing centres.

Brussels can be anxious that an acceleration in Covid-19 circumstances may mar the EU’s financial prospects, particularly in nations the place vaccination charges are low.

The steadiness of dangers to progress had “tilted to the draw back”, the fee warned.

“The European economic system is shifting from restoration to growth however is now going through some headwinds,” stated Paolo Gentiloni, the EU’s economics commissioner. “There are three key threats to this constructive image: a marked improve in Covid circumstances, most acute in areas the place vaccinations are comparatively low; rising inflation, pushed largely by a spike in power costs; and provide chain disruptions which might be weighing on quite a few sectors.” 

The EU’s highly effective financial rebound follows its unprecedented decline in 2020, with post-Covid reopenings enabling larger shopper spending and freer journey. In the meantime, public funding is on observe to hit its highest ranges in a decade.

The revival in demand has been so robust that provide is struggling to maintain up.

The report singled out logistics disruptions, shortages of semiconductors, and issues sourcing a spread of commodities and uncooked supplies as key constraints for industrial restoration. EU surveys counsel that roughly 43 per cent of the manufacturing sector has been affected by “extreme shortages” of fabric or tools, whereas companies firms are far much less involved.

The general progress outlook ought to stay robust, with each the EU and eurozone forecast to maintain a 4.3 per cent growth in 2022. Nonetheless, the outlook was extra unpredictable, the fee stated.

The EU’s industrial core dangers being most closely affected by shortages of parts and supplies. Germany’s economic system is predicted to develop 2.7 per cent this 12 months, slower than the general EU price, earlier than it accelerates to 4.6 per cent in 2022.

France, the EU’s second-biggest economic system, will develop by 6.5 per cent this 12 months and three.8 per cent in 2022, in keeping with the fee. Italy will develop by 6.2 per cent in 2021 and 4.3 per cent subsequent 12 months.

Sectors the place exercise was surging most have been starting to expertise labour shortages, the fee discovered. About 3.4m jobs are projected to be created in 2022 and 2023, bringing the unemployment price within the EU down to six.5 per cent in 2023 in contrast with 7.1 per cent this 12 months.

Nonetheless, general, the report didn’t discover indicators of mounting wage pressures from pay negotiations. Within the second quarter of this 12 months, negotiated wages within the euro space grew at a price under 2 per cent, extra reasonably than within the interval earlier than the Covid recession, the fee stated.

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