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Figure 3 – Potential added value decomposition – growth rate – Initial baseline and worst-case scenario

Potential added value decomposition – growth rate – Initial baseline and worst-case scenario

Potential added value decomposition – growth rate – Initial baseline and worst-case scenario

To estimate the size of the correction, we assume that a potential growth shock similar in amplitude to that observed during the last economic and financial crisis will occur in 2020. This corresponds to a contraction of capital per person employed of 0.5 percentage points, a contraction of TFP per person employed of 0.2 percentage points and a contraction in the employment rate of 0.1 percentage points for the EU as a whole. Moreover, as we are interested in evaluating the loss of potential added value, we take a long-term perspective, thus calculating the cumulated loss from a ‘no action’ scenario until 2035, compared with the baseline. The impact of the simulated shock on potential added value and on its components is represented in Figure 3. As expected, capital per person employed and TFP are heavily impacted and recover only moderately over the simulation horizon. Potential added value growth is also affected significantly, falling to 0.8 % in 2020 and barely reaching 1 % in 2035, some 0.8 percentage points below the initial baseline. Finally, employment rate growth becomes negative from year seven, contributing further to the weakness of the recovery. Compared to the initial baseline scenario, from 2020 to 2035 this would represent a cumulated €2.9 trillion of added value losses for the EU as a whole compared to the initial baseline scenario.

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