Will there be an Economic recovery soon in Europe

Major European nations witnessed contraction in real GDP in Q1, with the UK seeing -6.1%, Germany -3.1%, Italy -0.8%, and Spain -0.1%. However, Q2’s vaccination drives and reopening initiatives are expected to aid economic recovery, with the top ten European nations by nominal GDP expected to grow at an average annual rate of 4.5% in 2021, says GlobalData a leading data and analytics company.

Gargi Rao, Economic Research analyst at GlobalData, comments: “The driving factors for economic recovery in H2 2021 and 2022 will depend on adequate policy support from European Governments, easing of restrictions, an improvement in export demand, firming up of investor and consumer sentiments, and effective vaccine rollouts. However, any sudden drops in savings rates when restrictions are eased might deter investment climate in the short term.”

Steady economic recovery is expected in H2 2021 as most European nations made plans to fully reopen by short term, and the EU has allowed fully vaccinated tourists from other nations to travel across its boarders. Germany is gradually lifting restrictions, with cafes and restaurants now allowed to serve customers outdoors from 21 May onwards, and the country is lifting travel restrictions for most countries from 1 July. Further, France lifted its curfew from 20 June onwards and wearing of masks is no longer mandatory, while Italy was planning to fully lift curfew in low-risk areas from 21 June.

Rao noted: “However, some countries have seen setbacks in reopening plans. The UK has delayed by a month due to the emergence of the delta variant.”

Alongside reopening initiatives, vaccination drives are aiding faster economic recovery. The UK Government has fully vaccinated around 48.9% of its population, followed by Spain (36.3%), Switzerland (34.1%) and Belgium (33.9%). Further, huge fiscal stimulus is expected to boost consumer and business confidence.

Rao adds: “As of June 2021, Italy’s fiscal stimulus accounts for 60.8% of its GDP followed by Germany (37%), the UK (29.8%) and Spain (26.9%).

As a whole in 2021, GlobalData forecasts that the UK will lead recovery with a growth rate of 6.48%, followed by France (5.84%), Spain (5.78%) and Italy (4.6%). Other countries such as the Netherlands, Switzerland and Belgium are projected to see swift economic rebound in H2 2021, with steady improvement in external business climate alongside robust recovery in consumer demand. Further, a green light for spending under the Next Generation EU program (worth $915bn) is set to aid faster economic and social recovery for H2 2021.

Rao concludes: “Initiatives to relax lockdown restrictions and the reopening of borders to foreign tourists, have driven European economies in H2 2021. However, economic recovery will come alongside higher debt burdens and high corporate distress in terms of labour and financial markets.”