BRUSSELS — New variants of the coronavirus could still derail the growth rebound seen in Europe, according to the EU’s economics chief, as the region deals with another surge in infections.
Paolo Gentiloni, the EU’s commissioner for economics and taxation, said that it’s “too soon to declare victory” over the pandemic, despite lofty GDP projections for this year.
“It’s still the pandemic,” Gentiloni replied when asked about the top risk to the EU economy. “We should be very cautious on possible new variants and we need to strengthen vaccination.”
He said that new restrictions were possible. “They will not have the same impact, the same economic impact than previous ones … our economy is more acquainted to these kind of situations,” he added.
Last week, the European Commission, the executive arm of the EU, projected a GDP rise of 5% for both the EU and the euro area this year.
The institution highlighted that “despite mounting headwinds,” the bloc is expected to grow at a significant pace in the next two years.
Some EU nations have started to see a high number of Covid-19 infections in recent days, mainly in countries where vaccination rates are still relatively low. Austria and the Netherlands have imposed new social restrictions in the last few days.
Another uncertainty is the question of energy prices. The bloc saw a rapid increase in prices for natural gas and electricity after the summer period and, despite some government intervention, there are concerns about what impact this will have on consumers.
The commission said that inflation in the euro area will peak at 2.4% in 2021, before declining to 2.2% in 2022, and 1.4% in 2023.
Higher consumer prices are being closely monitored by market players, with some expecting the European Central Bank to tighten policy throughout 2022 and announce a potential rate hike late next year. The ECB has so far said that higher inflation will be temporary.
The commission shares this assessment. Speaking to CNBC, Gentiloni said that if inflation proves to be indeed temporary, then the ECB will not need to tighten policy.
The economic recovery in the EU is being supported by the Next Generation EU funds — the 800 billion euros ($916 billion) that the European Commission has started raising from the markets and disbursing across the bloc.
So far, 22 out of the 27 EU countries have started receiving these funds. But Poland is not among them.
The commission is concerned about what it describes as the lack of independence of the Polish judiciary and has asked Warsaw to address this in order to receive its share of EU funds — roughly 36 billion euros.
Poland’s Prime Minister Mateusz Morawiecki accused the EU of making demands with a “gun to our head” in an interview with the Financial Times last month.
Speaking to CNBC, Gentiloni confirmed that without action, Poland will never see these funds.
“I think the Polish authorities are quite aware of the need to do this,” he said, referring to the need to take action on the judiciary front. He added that discussions with the Polish authorities are ongoing.