How Europe’s economies bounced back after the first wave of COVID-19.
Following the emergence of the disastrous coronavirus pandemic in early 2020, countries around the world have suffered not only a major loss within their populations but a blow to their economic stability as well. Following the initial outbreak, countries in Europe outlined and enforced strict restrictions for their inhabitants to minimize the infection rate and ultimately save lives.
Taking this route inevitably hurt Europe’s respective economies, as civilians were unable to work in the same way that they had before the virus. Businesses like restaurants, bars, and shops were closed to comply with quarantine guidelines. Because the virus was intially spread through international travel, travel bans were also implemented by March. These containment measures unsurprisingly led to a severe recession.
In response, European Union policymakers have taken strides to provide support to companies and people in need. The recession reflects a decline in household spending, corporate investment, international trade, and economic output. The European Commission reports that countries within the European Union have experienced an estimated average decline in annual GDP growth of up to 3 percentage points per month of lockdowns.
This hard work did eventually pay off and Europe’s economy was able to bounce back after months of hardship. However, recent data suggests that this improvement was merely temporary, as the second wave of the coronavirus has just begun.
Europeans are pessimistic about economic growth.
The Dutch bank ING recently polled 14,000 American and European respondents about their thoughts on economic recovery amid the pandemic. The survey revealed that Europeans polled from Britain, Spain, Italy, and France were overall less optimistic about economic recovery than Americans, stating that their domestic economies would get worse before getting improving.
The opinion of Europeans isn’t far off from reality, as their economic recovery lost momentum in September. The head of the European Central Bank has stated that the economic recovery from the coronavirus pandemic “risks losing momentum” as a result of a second wave of the virus and that more stimulus could be added if necessary to aid companies and civilians.
Germany’s service industry has not grown much after the summer months, when strong manufacturing helped its private sector reach a solid recovery.
In France, Europe’s second-largest economy, business activity has fallen for the first time since June. France reported roughly 19,000 new cases during the second week of October, evoking panic over the secondwave of the Coronavirus . Responding to the crisis, President Emmanuel Macron announced new restrictions, shutting down cafes and bars.
Similarly, Spain’s services and tourism sector suffered a blow due to travel restrictions this past summer. This month, Spain’s central bank governor said that the increasing spread of the virus could lead to the imposing of restrictions that would consequently cause an economic contraction of as much as 12.6% this year.
Italy’s services industry declined in the past two months with no improvement as of yet. The case Britain is a bit of an outlier, as it displayed some economic durability. The United Kingdom’s general output has been stronger compared to other European countries like France, Spain, and Ireland, which have posted output contractions.Although the UK private sector output showed growth in September, the pace of the growth decreased month by month. In August the growth measured 59.1 whereas September measured 56.5.
This economic decline is attributed to the reimposition of restrictions on activity due to increasing cases of coronavirus. Last month, a Reuters poll found that a rise in infection rates in Europe is the largest threat to economic recovery.
Fear of unemployment and sickness contributes to economic decline.
Jessica Hinds of Capital Economic reports that “In Spain and France in particular, and elsewhere in the euro zone, there has been a tightening up. Fears of a resurgence are adding to consumer caution…”. Bert Colijn at ING adds that consumer confidence is historically low while unemployment is high.
Europe’s summer of economic growth is the product of the revival of factories.
This past July, European countries experiences lower infection rates and lockdowns were lifted. Travel was once again open between counties and tourists could rejoice. European economies grew as individuals began to spend money in restaurants, shops, or vacation hotspots. Retail sales proved to be larger than expected in August as many people made online purchases during the pandemic. Oxford Economics analyzed data across Europe and concluded that the summer economic expanision was also a result of factory revival following lockdowns.
However, economists argues that these happy times would be dependent on whether the virus could be contained. People have begun to spend less, as they feel less confident that they will have financial stability in the coming months or years. The European Central Bank’s chief economist warned that countries within the European Union may not recover from the economic setbacks until 2022 and countries that rely on tourism for GDP are more vulnerable than others. The bank also predicts that the eurozone economy will contract by 8 percent this year
Europe’s economic expansion will be gone as quickly as it came.
Unfortunately, it is unsurprising that the secondwave of the Coronavirus has hit Europe, as scientists have long warned of this outcome. Another guarantee is that economic growth in Europe is on the decline, as data has illustrated as well.
For economic expansion to occur, people need to feel secure in their finances and jobs. Due to the pandemic, people are hesitant to spend because they don’t know if they will be losing their jobs next week.
One obvious solution to this dilemma is the creation and proliferation of a COVID-19 vaccine, however, experts say the vaccine will not available until well into 2021. Despite this grim reality, European governments can fully implement restrictions to meets standards of the three phases, outlined in the policy brief entitled Rebooting Europe: A Framework for a Post Covid-19 Economic Recovery, to get the virus under control and resume daily activities more safely. Analysts also propose that the ECB bank add more stimulus to help deal with any new restrictions on travel and activity timposed by governments to slow the spread of the virus.