One year after the first cases of covid-19, the pandemic continues to expand through the European continent, that by 2021, it represents a fundamental variable for economic growth and the evolution of uncertainty. The recovery will still depend on political stimulus, which could result in an asymmetric rebound across the regions since some countries have larger resources to stimulate the economy.
The International Monetary Fund estimates that the product in Europe could reach 5.1% compared to 2020, as a result of the positives results in the vaccination campaign in the main economies of Europe, namely Italy, German, Spain, and the United Kingdom. On the other side, The European Central Bank will keep the interest rate as it is, which mean at 0% the marginal credit facility will remain at 0.25% and the deposit facility at -0.50%; those measures will maintain financial stability in the short term, joined to the fiscal assistance provided by governments to short – medium enterprises and households.
Despite liquidity measures implemented by the central banks and the flexibility of adjusting spending programs, there are some countries which budgetary restriction is limited. Furthermore, the downsloping in intern demand and the increase of unemployment rates are causing a deterioration on sovereign debt. As an example, countries such as Spain and Greece are expected to have a major economic contraction.
It is important to not leave aside that the possibility of a prolonged recession could adversely affect financial sectors and increase the risk of financial instability, joined with the fact that stock prices fluctuate daily, based on many factors including economic, industrial and geographical. Weather patterns, on the other side, including drought, are affecting the economies of Eastern Europe, which also poses a downside risk in forecasts.
This article is in our Market Outlook 2021
Alejandro Avila Ramírez, BSc in Economics
Laura Díaz Villamil, BSs in Economics