Europe’s recovery hits the ‘sweet spot’ but economists see the risks ahead


The European economy is recovering from a coronavirus crisis. Growth in the euro area surpassed the US and China in the last quarter, with more than 70 percent of EU officials vaccinated in Covid-19, the economy grows and unemployment falls.

However, European Central Bank President Christine Lagarde slammed a caution last week, saying “we haven’t come out of the woods” is highlighting a number of dangers in the coming months, although it raises a third consecutive forecast this year.

Economists say the European economy is in a “good position” that has slowed down due to the economic downturn caused by the epidemic last year. But he cautioned that the region should follow suit in the US and China, which has quickly recovered from the Covid-19 crisis only to have their rebounds lose power soon.

“We’ll get a good third quarter in the euro, but the winter comes with a lower risk,” said Erik Nielsen, chief financial officer at UniCredit. “Our next sign is not going well at the end of the year, so there are indications that this recovery may not be as easy as people think.”

A major warning sign is coming from barriers in global markets that have left manufacturers struggling to cope with rising prices for everything from semiconductors and paper to metal and plastics.

Automotive manufacturers lined up at the IAA Mobility conference last week in Munich to warn that there would be no end to chip shortages that forced them to close production lines and drop their production at 30% below epidemics. “I hope the third quarter is a bar, and then we’ll start going back to the fourth quarter,” said Ola Kallenius, Daimler’s chief executive.

“The crisis in marketing is serious,” said Gilles Moec, Axa’s chief financial officer. “Just look at the differences between systems and products for German car manufacturers, they are much larger, and a good portion is not being met so we need more.”

The Moec added that the crisis over consumer goods could hit consumers hard by boosting the euro’s sharp rise, which has risen to 3% in August and is expected to continue for several months. “We are beginning to see what affects consumers in the US and it can happen here in Europe,” he said.

A second threat to European recovery is that Delta variability or other risk factors also contribute to Covid-19 infections, even after extensive vaccination.

“The proliferation of the Delta nation at the moment did not require that the settlement mechanisms be reinstated,” Lagarde said. “But it could delay the resumption of global trade and the resumption of the economy.”

Ifo Institute line chart for German car manufacturers shows

The number of coronavirus patients in a major hospital in Germany has doubled in the past two weeks, although not yet. In France, the Pasteur Institute warned last week that removing all remaining restrictions would “create significant health risks”, with more than 5,000 hospitals operating a day – more than the peak of the virus last year.

Another economic threat facing the eurozone is that the recent slowdown in the US and China could weigh heavily on growth.

While the clouds are near, there is high hope that the biggest Covid-19 crisis in Europe is over and the region is preparing for several years of strong growth, with the ECB saying it could reach 5% this year and 4.6 percent in 2022.

Daniela Ordonez, an economist at Oxford Economics, said Europe had “changed” completely in its return from the coronavirus crisis, adding: “Negotiations during the epidemic begin as the economy recovers.”

The EU Statistics raised the second-largest euro growth rate to 2.2% last week, noting that most of this was due to a 3.7% rise in household spending. Expenditure on governments and financial enterprises was also high, while the number of items that were just a slight drag.

Chart of a line for Eurozone fixed formation as% of domestic domains (excluding Ireland) indicating that Business is on the rise

“In terms of speed, we are in a good position because growth will remain strong according to European standards even next year,” said Silvia Ardagna, a European economist at Barclays. “Some areas have so far not been affected by the outbreak, there is more funding available and the labor market is growing faster than expected.”

Unemployment in the euro area has dropped from 8.5% since the epidemic hit last year to 7.6% in July, although there are 900,000 more people than ever before in the crisis and many more are relying on fiscal means. In the meantime, southern European countries have benefited from strong countries they are also making tourism than they expect in the summer.

Many economists expect European governments to keep their money safe next year – especially as Germany and France prepare for elections. The boost will also come from the EU’s 800bn Next Generation EU fund, which is starting to enter the national treasury.

Lagarde said the entire euro area is set to resume the epidemic by the end of the year – an important event that the US and China have already hit but the UK cannot wait until next year.

However, Nielsen at UniCredit said the real test for the European euro was that it could quickly close its return limits based on expectations before the crisis hit, which he said would not happen until 2023. “

Additional reports by Joe Miller in Munich



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