The European economic recovery has reached a “sweet spot”, but economists believe that risks are accumulating


The European economy is recovering from the coronavirus crisis. In the last quarter, growth in the Eurozone surpassed that of the United States and China. More than 70% of EU adults have been fully vaccinated against Covid-19, investment is booming, and unemployment is declining.

However, Christine Lagarde, President of the European Central Bank, sounds Careful attention Last week, although he raised his growth forecast for the third time in a row this year, he said that “we are not out of the predicament” and emphasized some risks in the coming months.

Economists say that the European economy is at a “sweet spot” of rebounding from the record post-war recession caused by the pandemic last year. But they warned that the region seems to follow the pattern of the United States and China, the United States and China recovering from the Covid-19 crisis faster, but the recent rebound has lost momentum.

“We will have good growth data for the third quarter of the Eurozone, but the winter brings the risk of economic slowdown,” said UniCredit chief economist Erik Nielsen (Erik Nielsen). “Our leading indicators fell sharply before the end of the year, so there are warning signs that this recovery may not be as smooth as people think.”

The biggest warning signal comes from bottleneck In the global supply chain, manufacturers have to deal with shortages and soaring prices of products ranging from semiconductors and paper to steel and plastics.

At the IAA Mobility conference in Munich last week, executives from automakers lined up to warn that the prospect of chip shortages is invisible, forcing them to shut down production lines and keep output 30% lower than pre-pandemic levels. Daimler CEO Ola Kallenius (Ola Kallenius) said: “I believe the third quarter will be a trough, and then we will start to rise again in the fourth quarter.”

“The supply side is definitely a problem,” said Gilles Moec, chief economist at Axa. “Look at the gap between German automakers’ orders and output. It is huge, and a large part of the demand is not met, so we missed some output.”

Moec added that if supply chain issues contribute to rising inflation in the euro zone, it may hit consumer spending. The inflation rate in the euro zone has risen to a 10-year high of 3% in August and is expected to continue in the next few months. rise. “We are beginning to see that this will affect consumers in the United States, and this may happen in Europe,” he said.

The second risk of the European recovery is whether Delta variants or other strains will cause a further destructive wave of Covid-19 infection despite the increasing level of vaccination.

Lagarde said: “So far, the spread of the Delta variant does not require re-implementation of blockade measures.” “But it may slow the recovery of global trade and the full reopening of the economy.”

Ifo Institute's survey of German automakers line chart shows German automakers’ backlog of orders has surged

The number of coronavirus patients in intensive care in Germany has doubled in the past two weeks, but it is still well below the previous peak. In France, the Pasteur Institute warned last week that the removal of all remaining restrictions would “put tremendous pressure on the health system”, with more than 5,000 hospitalizations every day-more than last year’s peak of the virus.

Another risk facing the export-focused euro area economy is that the recent slowdown in the United States and China may drag down euro area growth.

Despite these dark clouds, people are generally optimistic that the worst period of the Covid-19 crisis in Europe has passed and that the region will usher in several years of strong growth. The European Central Bank said it will reach 5% this year and 4.6% in 2022. .

Daniela Ordonez, an economist at Oxford Economics, said that Europe’s rebound from the coronavirus crisis has reached a “turning point”, adding: “As the economic recovery is in full swing , Discussions about the post-pandemic era began to dominate.”

The Eurostat last week raised the Eurozone’s second-quarter growth data to 2.2%, saying that most of it came from a 3.7% increase in household spending. Government spending and business investment have also increased, while inventory reduction is the only slight drag.

The line chart of total fixed capital formation in the Eurozone as a percentage of GDP (excluding Ireland) shows that business investment is on the rise

Silvia Ardagna, chief European economist at Barclays, said: “In terms of momentum, we are in the best position because, by European standards, economic growth will remain strong even next year.” Some industries have not caught up with pre-pandemic levels, there is a lot of excess savings to spend, and the labor market is improving faster than expected.”

The unemployment rate in the Eurozone has dropped from a high of 8.5% after the pandemic last year to 7.6% in July. Even though the number of unemployed people is still about 900,000 more than before the crisis, and more people rely on vacation plans for income.At the same time, southern European countries benefited from stronger Tourism rebound Exceeded summer expectations.

Most economists expect European governments to maintain supportive fiscal policies next year—especially as Germany and France are preparing for elections. The European Union’s 800 billion euro next-generation recovery fund will be further boosted, and the fund is beginning to flow into the national treasury.

Lagarde said that the euro zone’s GDP is expected to return to pre-pandemic levels before the end of the year-the United States and China have reached a milestone, but the United Kingdom is unlikely to reach it before next year.

However, UniCredit’s Nielsen said that the real test for the euro zone is how quickly the output gap can be closed by returning to the level expected before the crisis broke out, which he said is unlikely to happen before 2023. We reached this level long before we returned to the pre-pandemic trend line,” he warned.

Additional report by Joe Miller in Munich


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