Euro zone ministers to stay upbeat on growth despite Omicron

Euro zone finance ministers are likely to stay upbeat about growth prospects when they meet to discuss latest developments on Monday, as the economy has learned to adapt to the pandemic over the last two years, officials said.

The emergence of the Omicron variant of the coronavirus has increased concern among some economists that the European economy could be heading for more lockdowns after a roller-coaster ride since the start of 2020.

But a senior official involved in the preparation of the meeting, at which the International Monetary Fund will also present its view on the euro zone economy, said the new variant raised uncertainty, but did not change the big picture.

“The big picture is that the economic outlook remains favourable,” the official said. “Growth in the second and third quarters of this year was rapid and the recovery is set to continue,” he said, adding the IMF would also be quite optimistic about the recovery in its report.

The European Commission forecast in November that the euro zone economy would grow faster than previously expected this year and continue to expand strongly in 2022 with deficits and public debt falling.

Euro zone gross domestic product is forecast to grow 5.0% this year after a 6.4% recession in 2020. Growth is expected to be 4.3% in 2022 and 2.4% in 2023.

“I think the overwhelming expectation still remains that we shouldn’t exaggerate the situation (with pandemic difficulties), that we should expect the world economy to adapt to these supply demand imbalances,” the official said.

The economy has been adapting to the pandemic, becoming increasingly resilient thanks to the ongoing rollout of vaccines, the official added.

“Essentially, economic actors have developed new ways to work within the pandemic situation. So, the expectation is that, while pandemic dynamics may weigh on the economic outlook, the effects are unlikely to be as severe as what we have seen before,” the official said.

The ministers are also likely to endorse a European Commission recommendation to keep fiscal policy help for the economy next year, though with a shift of focus from blanket support for all to targeted measures for specific sectors.

The European Central Bank, the Commission and the IMF all see record high euro zone inflation, which hit 4.9% year-on-year in November, as a temporary phenomenon and there have so far been no second round effects on wages, the official added.