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The eurozone’s economy is diverging sharply from the U.S. and China, as stubbornly highcoronavirus infections, extensive Covid-19 restrictions and a painfully slow vaccinerollout delay Europe’s recovery from last year’s historic economic downturn.
Fresh data Tuesday highlighted an economic gap between the eurozone and the U.S. andChina that is likely to widen this year, given that the U.S. is proceeding more quickly thanthe European Union in rolling out vaccines and China remains largely free of the virus.
The eurozone’s gross domestic product contracted by 0.7% in the three months throughDecember from the previous quarter, resulting in an annual decline of 6.8% for the bloc in2020, the EU’s statistics agency said on Tuesday. That compares with a 3.5% decline for
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https://www.wsj.com/articles/europes-economy-falls-further-behind-u-s-and-china-its-getting-desperate-11612272788
ECONOMY
Europe’s Economy Falls Further Behind U.S.and China. ‘It’s Getting Desperate.’Eurozone GDP fell nearly twice as much as the U.S.’s last year, as China powered ahead
Once Europe finally emerges from lockdowns, many businesses are likely to be in a precarious financial position, Berlin onDec. 11.PHOTO: ODD ANDERSEN/AGENCE FRANCE-PRESSE/GETTY IMAGES
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Feb. 2, 2021 8:33 am ETTom Fairless Eric Sylvers Harriet Torry
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the U.S. economy last year, supported by a strong rebound in the fourth quarter. China’seconomy grew by around 2.3% last year.
Since the start of the pandemic, European policymakers have sought to balance saving lives andsupporting businesses, but have generallypursued more draconian restrictions to stop thevirus’s spread than has the U.S. Nonetheless, thedeath toll in Europe is approaching that of U.S.,while its economic performance—alreadylagging behind the U.S. before the pandemic—has been much worse than other advancedeconomies.
Now, a sluggish rollout of vaccines, the threat ofhighly contagious new variants of the virus andthe possibility of weeks or months of continuedrestrictions bode ill for the near term and coulddelay a recovery. EU countries haveadministered vaccines to less than 3% of theirpopulations compared with 9% in the U.S. and14% in the U.K., according to OurWorldInData.
Many economists expect the eurozone to re-enter recession in the coming months. “Theeurozone will be the last major economy toreturn to pre-pandemic levels and will suffercontinued substantial output gaps for at leastthe next two years,” said Erik Nielsen, chiefeconomist at UniCredit.
The International Monetary Fund expects theeurozone economy to end this year 3.3percentage points smaller than it was at thestart of 2020, while the U.S. economy will be 1.5%larger.
At the current pace, the U.K. should haveadministered at least one dose of vaccine to 60%of its population by June, and the U.S. couldfollow by October, according to Berenberg Bank.France and Spain won’t reach that thresholduntil summer 2022, and Germany and Italy willtake until 2023, the bank said.
At Lindner Hotels AG, a German family-ownedcompany, up to 90% of staff have been onfurlough since November, with some furloughedfor the past 10 months, said Chief Executive OttoLindner. The company’s revenue declined byroughly two-thirds last year.
“The second lockdown is much more brutal thanthe first. It’s getting desperate,” Mr. Lindner said.
Ryanair Holdings PLC, Europe’s biggest carrier, Monday downgraded its total passengerforecast for its fiscal year ending in March by as much as 9 million. It now expects only to
Real GDP projections, change from previous
year
Source: International Monetary FundNote: 2020 is an estimate.
%
2020 2021 2022
Eurozone U.S. China
-10
-5
0
5
10
Total Covid-19 vaccinations administered
per 100 people for select countries
Source: Our World in Data
Note: Data through Feb. 2 (U.S., Italy); all othercountries through Jan. 31
14.4
9.6
3.4
3.4
3
2.3
1.7
U.K.
U.S.
Spain
Italy
Germany
France
China
Change in visits to retail and recreation
areas from pre-pandemic levels
Source: Google Mobility
Notes: Based on smartphone location history;represents a sample of users intended to showtrends; calculation depends on user settings,connectivity and whether privacy threshold is met;data are for Fridays only; as of Jan. 29.
%
U.S.
Italy
France
Spain
Germany
U.K.
March 2020 '21
-100
-80
-60
-40
-20
0
20
fly between 26 million and 30 million customers. For fiscal 2022, the airline is forecastinga range of 80 million to 120 million passengers, about 70 million fewer passengers than itspre-pandemic assumptions.
“It’ll be a slower ramp up than we had possibly hoped, but I do think it will jump quitesignificantly once the vaccines are rolled out to a critical mass,” said Chief FinancialOfficer Neil Sorahan.
In Italy, Massimo Carboniero has a reasonably full order book for his company makingindustrial presses, but worries that if the coronavirus crisis drags on he will have troublegenerating new business to offset what he lost during the pandemic.
“We are getting orders from clients that we already have, but it’s hard to get new oneswhen nobody can travel and there are no trade fairs,” said Mr. Carboniero.
Roberto Sciacchitano, who works near Milan for a company making parts for theaerospace industry and other sectors, spent two months furloughed last year when hisfactory closed as a result of Italy’s lockdown. While he is back working, he worries he willbe furloughed again before the pandemic is fully under control.
“We are at the mercy of what happens outside of the factory,” says Mr. Sciacchitano.
Once Europe finally emerges from lockdowns, many businesses are likely to be in aprecarious financial position, economists say.
Michael Kaefer says revenue collapsed around 80% last year at his family-owned cateringbusiness, Feinkost Kaefer. Looking for new businesses, he has recently signed contracts toopen high-end food stores and to provide catering services for the airline business, whichhe expects will come back, but maybe not strongly.
“We will have an economic crisis after [the virusis] gone. There will be less money in companiesand in private business,” Mr. Kaefer said.
There are bright spots. Eurozone exports to Asiahave held up. BMW AG and Daimler AG recordedsharp increases in China sales last year, up 7%and 12% respectively, making up for double-digitdeclines in the U.S. and Europe.
Europe’s large manufacturing sector is holdingup better this time. Eurozone factory outputexpanded for a seventh straight month in
Europe’s uncertain outlook contrasts with a brighter picture in the U.S., where restrictions, such asshop closures in France, have been less stringent.PHOTO: IAN LANGSDON/EPA/SHUTTERSTOCK
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January, driven by Germany, albeit at a slower pace than in previous months, according toa recent survey by IHS Markit Ltd.
In Europe, sweeping job-retention schemes helped prevent large-scale unemployment inthe short term. Close to a third of Europe’s workforce, or 45 million jobs in the five largesteconomies alone, benefited from national employment support schemes last year,according to data from Allianz SE. Millions of workers are still tapping the schemes amida new wave of lockdowns.
Europe’s uncertain outlook contrasts with a brighter picture in the U.S., whererestrictions have been less stringent, and a large new fiscal stimulus and huge savingscould unleash a wave of spending once vaccinations are widely deployed. In the U.S.,output growth accelerated in January toward a six-year high, according to businesssurveys.
Ande Pietoso, co-owner of Café Napoli and two other restaurants and a bar in the St.Louis, Mo., area, said shutdowns and restrictions on in-person dining capacity had cutinto revenue during the spring and the holiday season. But the restrictions didn’t affect allof his restaurants, and he could continue curbside trading.
He has installed plexiglass dividers and set up igloos and heaters for outside dining.“We’re being forced to spend more money and not able to make more money to breakeven,” said Mr. Pietoso.
But he is “definitely more optimistic” about 2021 because of the rollout of the vaccine, andpent-up demand. “I think that people are dying to get out again” to visit bars andrestaurants, he said.
Ugis Sprudzs of Oak Park, Ill., lost his job in the financial and data analysis field when hiscompany restructured in late December, and has since applied for unemployment.
“On the economic front, I think things will improve because vaccinations will take place,”which should spur revived consumer spending and activity in 2021, Mr. Sprudzs said. Hecanceled a planned trip to Florida over the holidays due to Covid-19 concerns, but said heplans to travel to Europe as soon as international travel becomes feasible.
Write to Tom Fairless at [email protected], Eric Sylvers at [email protected] andHarriet Torry at [email protected]
Appeared in the February 3, 2021, print edition as 'EU Economy Falls Further Behind U.S., China.'
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