Which eurozone economies are rebounding the fastest?
KNOTCH ON BACK through several episodes of covid-19, the European economy is now finding its feet. Its vaccination campaign is advancing and lockdown restrictions are easing. On May 17, the Italian curfew was changed from 10 p.m. to 11 p.m. and on May 19, Parisians were allowed to return to their beloved cafes, after six months without. German businesses have been at their most optimistic for two years, according to figures released on May 25, and overall economic sentiment is soaring. The relief is generalized. The recovery will be less so.
Enjoy more audio and podcasts on ios or Android.
Europe entered the covid-19 crisis with still unhealed scars, countries in the north, like Germany, surpassing those in the south, like Spain and Italy. The pandemic rubbed salt into the wounds. Between the last quarter of 2019 and the second quarter of 2020, household consumption in Spain and Italy fell by 30% and 20% respectively, compared to only 11% in Germany. The crackdown on lockdowns and a drought in tourism income prolonged the pain. At the end of 2020, consumption in Italy and Spain was more than a tenth below its pre-crisis peak, compared to a deficit of 6% in Germany and 7% in France.
Some indicators suggest that the most affected countries are rebounding faster. Google mobility data from mid-May suggests that leisure and retail travel has returned to normal faster in Italy and Spain than in France and Germany, possibly because they reopened earlier. Others indicate a discrepancy. Figures from Indeed, a job search platform, suggest that the upturn in job postings from employers in Italy is much higher than in France and Germany, not to mention Spain (see graphic).
Beyond the immediate bump associated with fewer restrictions at home, three factors will influence the consistency of recovery. The first is the extent to which external stresses diminish. More flexible travel restrictions are important for Spain, where tourism revenues accounted for 12% of GDP before the pandemic. The strength of the German industrial boom, meanwhile, lies in resolving bottlenecks along the supply chain.
The second factor is the extent to which consumers spend their accumulated money. Their biggest piles of “excess” savings could help the hardest hit countries catch up. Compared to the French and the Germans, the Italians and Spaniards hid a lot more in 2020 than they did in 2019. That doesn’t mean they’ll spend it all, though. A survey of 5,000 European consumers by UBS, a bank, suggests that Spanish consumers plan to splurge less than others. Given the deplorable state of the labor market, this caution is hardly surprising. In March, the unemployment rate was 15%, three times that of Germany.
The third factor influencing the recovery is the strength of governments’ fiscal response. A fear of divergence has already motivated the EUthe stimulus fund of. This will direct more liquidity to Italy and Spain, and could stimulate growth there more than twice as much as in France and Germany, estimates S&P, a rating agency. But at a meeting on May 21-22, economists from Bruegel, a think tank, warned European finance ministers that they may need to go further. Since many forecasters expect that EU In order not to reach its pre-pandemic production level before 2022, another set of stimulus measures could help tackle other inequalities that appeared during the pandemic, such as the additional burdens borne by the young and the less educated.
Look beyond the immediate recovery, and the prospects for convergence appear limited. Notwithstanding the support of the recovery fund, the IMFItaly’s latest forecast suggests Italy’s economy will contract by 0.1% between 2019 and 2023, while Spain’s will grow by a meager 1.9%. France and Germany, meanwhile, are expected to grow by 2.9% and 3.5% respectively. Without more support, economies that were lagging even before the pandemic will see their recovery slow at a breakneck pace. ■
This article appeared in the Finance & Economics section of the print edition under the title “Dividing lines”