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Overview

The COVID-19 pandemic has triggered the sharpest peacetime recession in the EU, reversing recent progress in rising living standards. With output contracting 6.1 percent in 2020, it was the steepest recession since World War II. Economic activity in all EU member states has been affected but the impact has been uneven, with those countries in Southern Europe hardest hit.

The economic contraction was a symptom of the pandemic lockdowns that were imposed to protect lives, and the subsequent disruptions to labor, travel, trade, consumption, and investment felt by all countries across the EU. Unprecedented and exceptional policy response of governments and EU institutions cushioned the worst impacts on employment and income. Support was provided both at the regional and national level in the form of credit guarantees, liquidity facilities, debt suspensions, wage subsidies, expanded social assistance and tax relief. Automatic stabilizers and the triggering of the escape clause on EU fiscal rules also helped to soften some of the worst impacts.

Despite these measures, the pandemic exposed and exacerbated deep-seated inequalities, halting progress in several areas including gender equality and income convergence across the EU member states. Poverty and inequality are projected to have increased, and hard-won gains in household incomes have quickly been eroded in a highly uneven manner.

The third wave of infections and supply side constraints on the availability of vaccines may have delayed recovery in some countries initially. However, the vaccination rollout in the EU27 has since gained momentum, improving the recovery prospects. The evolution of the pandemic and the success of vaccination programs are paramount to a swift rebound. The continuation of policy support will also be necessary to ensure that no regions or countries are left behind.

Last Updated: Sep 15, 2021

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