The economic outlook by the Committee of the Regions for the EU’s economy


The European Union’s Committee of the Regions (CoR) is an EU level body which deals with the local issues and polices across the European Union Member States. This body is composed by more than 300 elected representatives of the local and regional municipalities, and it convenes several times during the year in its headquarters in Brussels. This article presents the analytical capacity of the CoR when it comes to complete picture of the EU’s economy. The newest Report “The EU annual regional and local barometer” issued by the CoR is the topic of this article’s analysis.

The Report puts tourism as the biggest variable which suffered as a consequence of the Covid19 pandemic. Tourism constitutes over 10% of EU’s total GDP and provides over 27 million jobs across the continent. Following the travel restrictions, border shutdowns and lockdowns introduced in many countries and 39 regions, tourism became the worst affected of all major economic sectors. The decline in travel and tourism has led to temporary and permanent losses in employment, and has caused an increase in bankruptcies in the travel, hospitality and related sectors, with severe consequences to many local economies. According to the OECD, depending on the duration of the lockdown, there has been a fall of 60 to 80% in international tourism flows. For instance in Portugal, where tourism represents about 23.1% of all employment and 10% of GDP, this already represents at least a 5% contraction in GDP from tourism alone. Also, domestic tourism flows have been heavily affected by restrictions on the movement of people, but are expected to recover more quickly once containment measures are lifted.

Coastal regions, especially the Mediterranean and Atlantic coasts, are amongst the hardest hit; around half of hotel bed capacity within the EU is concentrated in coastal areas, and tourism is by far the largest employer along the EU’s coast. Alpine regions such as the Dolomites and Tyrol are also very highly impacted. According to JRC research results presented during a joint CoR-OECD webinar, the impact on tourist areas is also not uniform. Areas in Portugal, Croatia, Greece and Austria, and cities such as Paris or Milan, rely on EU and extra-EU tourism. They will feel the consequences of the crisis more acutely and for longer than regions relying on domestic tourism such as in France. The maps in Figure 14 and Figure 15 highlight these differences. The Algarve region in Portugal is suffering more acutely from the economic impact of the crisis and activity will resume more slowly than in Gironde in France. Most tourist spots in France, Germany and Finland are essentially domestic. Rural tourism is also essentially domestic, whereas coastal areas have a higher proportion of EU tourism.

The second major part of the Report places the role of the Small & Medium Enterprises (SMEs) in the overall EU economy. Together with self-employed workers and micro-enterprises, SMEs are especially vulnerable to the effects of lockdown. Due to their size, they are less resilient than larger businesses. According to an OECD report, they have limited capital to sustain unusual periods of inactivity. It is more difficult for them to organise required social distancing. They have limited capacity to diversify their activities in case their sector is temporarily shut down. They are also strongly represented in the sectors most affected by the lockdown, such as tourism and transportation. This is confirmed by an SME United survey, in which about “40% of SMEs report liquidity problems as a consequence of the economic lock-down. In the most affected sectors like hospitality, retail and construction, 50% of SMEs have liquidity shortage”. This is further confirmed by the EIB, which reported a steep rise in SMEs’ credit demands in the first half of 2020, going hand in hand with tightening credit standards in the euro area. Unfortunately, credit tightening is foreseen to worsen, as large Member States’ guarantee schemes come to an end by the third quarter of 2020. Public authorities should address these difficulties to access credit, even if delayed payments and new loans generate more debt and increase risks of insolvency.

The Report claims that Local and Regional Authorities (LRAs) have been at the forefront of COVID-19 crisis management, and this has had significant consequences for their budgets. Across the EU, LRAs are responsible for more than half of public investment and approximately one third of all public expenditure. In the joint CoR-OECD survey, 39% of respondents representing LRAs said the lack of financial resources was “very challenging” in managing the COVID-19 health crisis at its peak, with a further 37% saying this was “somewhat a challenge”. This latest crisis has evidently created major difficulties for cities and regions both in terms of revenue and expenditure, and could exacerbate existing challenges and divergences.

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