EU Predicts Deeper Economic Hit        07/07 06:19

   The European Union's executive arm forecasts that the bloc's economy will 
contract more than previously expected because of the coronavirus pandemic.

   BRUSSELS (AP) -- The European Union's executive arm forecasts that the 
bloc's economy will contract more than previously expected because of the 
coronavirus pandemic, which has caused lockdowns on business and public life 
that are only slowly being eased.

   The 27-nation EU economy will contract by 8.3% this year, before growing 
5.8% in 2021, according to the latest predictions released Tuesday by the 
European Commission.

   "The road to recovery is still paved with uncertainty," EU Economy 
Commissioner Paolo Gentiloni told reporters in Brussels. "This is mostly linked 
to the epidemiological uncertainty."

   In the previous forecasts released in May, when most of the continent was 
still under lockdown, GDP was forecast to contract by about 7.5% this year and 
to bounce back by 6% next year.

   The European Commission said the impact on economic activity in 2020 will be 
worse than expected because "the lifting of lockdown measures is proceeding at 
a more gradual pace than assumed in our Spring forecast."

   That was illustrated in separate data from Germany on Tuesday that showed 
industrial production rebounded in May but was far from making up for the 
collapse of the preceding months.

   Gentiloni said that the EU's biggest challenge in the months to come will be 
to find the right balance between the necessity to reopen EU economies and the 
protection of citizens' health. More than 178,000 deaths related to COVID-19 
have been recorded across the continent according to the latest numbers from 
the European Centre for Disease Prevention and Control.

   "We have to live with the danger of local outbreaks" that could lead to 
plans to re-enter local lockdowns slowing down the economic recovery, Gentiloni 
said.

   The group of 19 EU nations that use the euro as their currency will see a 
record economic decline of 8.7% this year, and grow by 6.1% in 2021. In May it 
had forecast a 7.8% decline this year, and growth of 6.3% in 2021.

   Although the EU as a whole has been hard-hit by the downturn, Gentiloni said 
the drop and the rebound will differ widely from one member country to another. 
For instance, while Poland's economy is set to shrink by 4.6% this year, 
France, Italy and Spain are expected to experience double-digit drops.

   To ensure a quick bounce back, Gentiloni urged member states to adopt as 
soon as possible a recovery fund aimed at pulling the EU out of the recession. 
EU governments leaders and heads of state will meet next week in Brussels to 
try to reach a compromise on the 750 billion-euro package proposed by the 
commission.

   Backed by Germany and France, the money in the fund would be incorporated in 
the 2021-2027 EU budget. Two-thirds of the fund would take the form of grants 
to be made available to EU countries, while the rest would be made up of 
conditions-based loans for that governments can apply for.

   Gentiloni said the expected effects of the recovery plan have not been taken 
into account in the growth forecast, and that its quick implementation could 
help brighten the outlook.

   "It's important that an agreement is reached swiftly," he said. "To inject 
new confidence and new financing into our economy in critical times."