Eurozone recovery could face more setbacks – report

The next stage of the eurozone's recovery from the impacts of the COVID-19 outbreak could be challenging, according to a report by S&P Global Ratings.

The rating agency and research firm revised its forecast for eurozone gross domestic product downward to 7.4% this year, from the 7.8% it estimated in June. The firm said the eurozone will see a 6.1% rebound in 2021, up from the 5.5% it forecast in June.

"We are lowering slightly our expectations for unemployment, which we forecast will peak at 9.1% in 2021," said Marion Amiot, senior European economist, in a news release.

S&P's report said the eurozone's unemployment rate will gradually reduce to 8.4% in 2022 and 7.8% in 2023. The unemployment rate is currently 8.1%, up from 7.6% in 2019.

European economies are operating at around 5% below their pre-COVID-19 output levels and are estimated to return to pre-COVID-19 levels only in 2022.

The eurozone recovery is currently considered to be shaped like a check mark, with flat growth expected to follow the 2021 rebound, according to the firm's analysis. "The eurozone is now entering a tricky transition period from gradual withdrawal of government support toward implementation of the European Union's economic reform program. Liquidity, households' behavior and demand will be crucial in enabling the European economy to weather this transition, and much could go wrong along the way," Ms. Amiot said.

S&P doesn't expect the European Central Bank to tighten monetary policy but highlighted in the report that short-term risks remain, such as the potential of renewed lockdowns that could lead to a loss of confidence in the recovery.

S&P Global Ratings also said the U.K.'s withdrawal from the single market at the end of the year, under Brexit, could lead to new import and export tariffs as well as non-tariff trade barriers, which would add to European companies' challenges.