Economic recovery projections for the EU – key considerations

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Guest post by Craig Harbour

In some respects, it may be argued that the worst of the Covid-19 outbreak is behind us, with the rate of infection lower than it was during the second quarter and the number of fatalities largely in decline across the globe.

However, we may actually be approaching another peak in terms of infection rates and socio-economic pain, with the latter potentially exacerbated by the withdrawal of certain government assistance programs in the months ahead.

In this post, we’ll appraise the potential recovery for the EU and during Q3 and Q4, while factoring in the impact of any additional lockdowns and quarantine measures.

Are the Storm Clouds are Gathering in the EU and the UK

 Some people have found optimism in figures released by the US, which apparently show that new cases and hospitalisations have declined noticeably. However, this may have been triggered by a significant slowdown in testing, which was impacted by the threat posed on the East Coast by Hurricane Isais.

In the EU, it’s thought that member states are performing relatively well from the perspective of negating second waves of infections. However, there have been some localised surges in France and Spain, which have inspired small-scale lockdowns and the introduction of new quarantine measures indefinitely in these countries.

Interestingly, visitors from both of these nations (and Belgium) have been added to the UK’s quarantine list in recent times, while reports suggest that Greece could also be incorporated in the next few days.

These issues aside, the recent PMIs from the EU have been more than encouraging, with Craig Erlam from Oanda revealing that manufacturing output has enjoyed a considerable boom since the beginning of Q3.

This is indicative of a tentatively growing economy, and the rise in positive sentiment is likely to be continued given the relative lack of data releases in the coming days.

The Forecast for the Remainder of 2020

 Given the importance of tourism to EU member states (and the continued flow of travellers between the UK and the single bloc), the introduction of quarantine measures will continue to drag on the economy through Q3 and potentially Q4.

However, there are signs that reopening the economy in the UK has encouraged the Bank of England to revise its negative economic forecast for the region in 2020.

More specifically, it’s expected that the economy will shrink by 9.5 per cent as opposed to the previous estimate of 14 per cent, although once again much will depend on whether the region can avoid another national lockdown in the near-term.

The UK could also be affected by the removal of the furlough scheme in September, which may trigger a further surge in unemployment and lower the demand for international travel by association.

With this in mind, the EU will remain gripped in a state of uncertainty for the remainder of 2020, particularly as the threat of further national lockdowns in member states and key trade partners such as the UK looms large.

Of course, a sense of positivity will continue to be underlined by impressive PMIs in the region (if they can be sustained), while the EU’s ground-breaking €750 billion coronavirus recovery fund will be attached to a new €1.074 trillion seven-year budget to create much needed economic security for member states.