European Union/U.K. R&D

Like most other regions of the world, the European Union (EU) and the U.K. have been caught in the COVID-19 pandemic lockdown and economic consequences. In April, the U.K., the world’s sixth largest economy, saw its output drop 20% from March and 25% from April 2019. The U.K.’s Office for National Statistics estimated that the April lockdown took economic output back to where it was in 2002 — 18 years of growth was wiped out in a single month.

The Eurozone is expected to suffer a recession of historic proportions due to the pandemic, say EU officials. The EU will experience soaring national debts that will entrench economic divisions and threaten stability in the bloc. The overall EU is projected to contract 7.7% in 2020 and grow 6.3% in 2021. A recovery is expected to start in the second half of 2020.

In marathon negotiations in early July, European leaders agreed to an EU Coronavirus Recovery Fund of about $862 billion. The fund, however, is spread out over seven years and 19 countries. To finance this fund, the EU will borrow money on the financial markets and then give out $455 billion in grants and $420 billion in loans (which will need to be repaid by the countries). Of these monies, $88.5 billion will be focused on the Horizon Europe research program, which was significantly lower than the $110 billion plan originally proposed by the European Commission (EC) in May. The research budget was cut multiple times throughout the negotiations.

In real terms, the final Horizon Europe budget is close to the funding levels of its predecessors, when the UK’s contribution to the Horizon 2020 budget is taken into account. The core Horizon Europe program will be allocated $87.4 billion from the EU’s overall 2020 budget with a $6 billion boost from the pandemic recovery fund. The budget for the EU’s academic exchange program Erasmus+ will also be allocated nearly $25 billion from the overall annual budget, which is about $6 billion less than was originally planned.

European academic associations have called for a boost in EU research and innovation funds and for increased academic exchange programs, after the latest budget draft proposed a $6 billion cut from Horizon Europe. Fifteen university associations representing more than 800 European universities asked EU leaders to increase their investments in research and innovation in a letter to the commission, saying they are disappointed and concerned by the budget cuts. The letter stated that such cuts were counterproductive in the current pandemic situation. The letter further states that funding should be routed to fundamental research that will help the EU build a body of knowledge needed to fare better in other emergencies as well.

European universities had to shut campuses and move their coursework online after the pandemic broke, and lockdowns commenced in March and April. The universities are now faced in funding shortfalls in the upcoming academic term due to the subsequent recession with budget cuts likely on the back of the economic downturn.

While the entire EU bloc is expected to contract in 2020, the fragile economies in Greece, Spain and Italy are likely to fare even worse than average with their economies shrinking by about 10% and associated rises in unemployment rates as well, especially in Spain. The EC forecasts that by the end of 2020, seven eurozone economies will each see economic debts exceeding 100% of their GDPs. As such, their future R&D investments for the next several years will likely shrink as well. Eurozone inflation is expected to be contained in 2020 with the consumer price index (CPI) rising 0.2% in 2020 and 1.1% in 2021. Unemployment is forecast to rise to 9.6% by 4Q 2020 and 7.5% by 4Q 2021. Budget deficits are expected to rise above 10% in Italy and Spain and to 9.9% in France in 2020.

The region’s short-time work programs, wage subsidies and liquidity provisions for the commercial sector means that the rise in unemployment should be more moderate than in other parts of the world, according to European Central Bank analysts.

The reopening of businesses and retail establishments in Europe over the past two months has led to an increase in infection rates matching those last seen in May, when countries were just starting to come out of a two-month lockdown. Citizens are letting their guard down and making less of an effort to self-isolate, according to health care analysts.

This article is part of R&D World’s annual Global Funding Forecast (Executive Edition). This report has be published annually for more than six decades. To purchase the full, comprehensive report, which is 67 pages in length, please visit the 2020 Global Funding Forecast homepage.