Euro financial system, dragged down by COVID, lags behind US and China | Enterprise and Financial system Information
The European economy contracted 0.7 percent in the last three months of 2020 as businesses were hit by a new round of lockdowns aimed at containing a resurgence of the coronavirus pandemic.
The quarterly decline in the official number released on Tuesday wasn’t as sharp as experts feared. But that might not erase a dire outlook for this year: the 19 countries using the euro are expected to lag behind China and the United States as they recover from the worst of the pandemic.
The figures from the statistics agency Eurostat on Tuesday underlined a roller coaster year with freaky economic data. In the second quarter it was 11.7 percent, the largest since statistics began in 1995, followed by a recovery of 12.4 percent in the third quarter in late summer.
The winter wave of coronavirus infections has put new restrictions on travel and doing business, although companies in some sectors such as manufacturing have been able to adapt better than service companies such as hotels and restaurants.
The German economy, Europe’s largest, grew by just under 0.1 percent in the fourth quarter, while France recorded a decline that was 1.3 percent less than expected. Overall, the economists had expected a decline in the euro zone by up to 2.5 percent. For the year, the eurozone shrank by 6.8 percent.
The numbers come in the face of disillusionment and finger pointing at the slow pace of vaccine adoption in the European Union, while the UK, which has left the EU, started earlier and vaccinated people faster.
“While the Eurozone GDP [gross domestic product] The data was better than we expected a week ago. The near-term outlook for the European economy continues to be clouded by challenging health conditions in several countries and an overwhelming start to vaccination adoption, ”said Nicola Nobile, lead Eurozone economist at Oxford Economics.
The restrictions on everything from hair salons to pubs haven’t improved the mood despite the resulting onset of infection. Leaders like Chancellor Angela Merkel warn it is too early to let up in the face of the newer, contagious variants.
Meanwhile, pressure is mounting on people like Renee Gorgoglione, a restaurant owner who was among the 1,000 or so people who protested against lockdown restrictions in the Spanish holiday destination of Palma de Mallorca over the weekend.
A Palme d’Or symbol can be seen on the sidewalk in an empty shopping street during a nationwide curfew due to restrictions on the spread of the coronavirus in Cannes, France [File: Eric Gaillard/Reuters]”We shouldn’t pay taxes when we’re closed,” she said. “We cannot pay if we have no income. I cannot pay social security for my employees if I have no income and no help from our government. “
The euro zone is unlikely to reach 2019 levels of economic output until 2022, officials at the European Central Bank say. This is in contrast to China, which has already returned to pre-pandemic production levels, and the US, where Congressional budget experts expect a recovery to 2019 levels by mid-year. The International Monetary Fund (IMF) last month lowered its forecast for growth in the euro zone this year from 5.2 percent to 4.2 percent.
IMF chief economist Gita Gopinath said there are several factors that explain why Europe is lagging behind. European governments have curtailed activities more to save lives. Several European countries such as Greece, Spain and Italy are heavily reliant on tourism, which has been hit by the pandemic. and Europe has a large proportion of small and medium-sized enterprises that have had a harder time than larger enterprises.
Erik Nielsen, chief economist at UniCredit Group’s bank, pointed to the US stimulus package and called for an “acceleration of fiscal efforts” in Europe. He said this could include more government bonds and spending, taking advantage of the very low interest rates. The latest data leaves no doubt that “the euro area will be the last major economy to return to pre-pandemic levels,” he said.
“Aside from the possible health consequences, slow vaccination progress can force countries to maintain tight lockdowns for longer, which will delay the start of the economic upswing,” said Holger Schmieding, chief economist at Berenberg Bank. “We also have to monitor the possible political consequences.”
Schmieding said a perception that the EU is not coping well with the crisis could undermine national governments and “fuel the EU-skeptical sentiment in parts of the EU electorate”.
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