Europe and its “new normal”: the economy shows a strong rebound above expectations

The only curve that goes up and that excites. The phenomenon is progressive, but it is beginning to mark a profound change. Analyzed during the first weeks of opening, the countries of Europe are showing a good recovery in economic activity, although it will take time to reach pre-pandemic levels.

After having lived 18 months in negative quasi-continuity, the beginning of the normalization of daily life shows a strong rebound Yes suddenly. May ended with the European Union (EU) Economic Sentiment Indicator, which is a monthly survey of consumers and businesses, with a rose from four points to 114.5 units, significantly above its long-term average of 100 points. This is its highest level since the financial crisis of 2008, except for a few months in 2017.

The horizon is encouraging. Vaccines performing their functions effectively and true caution to avoid hasty openings they appropriate a climate so that the sustainability of the recovery and the way out of the crisis is the light at the end of the tunnel.

The photographs are a hope. Terraces of bars and restaurants which are reopening almost all over the continent, a Champions League final with 16,000 spectators, green collars for the return of European tourists and guaranteed vaccine supplies. In this situation, although with scruples, experts agree that the worst is behind.

All sectors show a similar improvement: services, construction, manufacturing, trade and consumption. Although with nuances, the data is similar in terms of trend reversals across countries. For the European Commission, it is expected that growth reached 5.7% in France in 2021, 5.9% in Spain, 4.2% in Italy and 3.4% in Germany.

For the euro bloc, the recovery should be 4.3% in 2021. However, growth must be continuous to return to pre-pandemic activity. Organization for Economic Co-operation and Development (OECD) advances that the United States has just returned to it, but that it will take another six months for Germany, a year for Italy and the Netherlands; 15 months for France and the Spaniards will be left behind because it will take them two years.

European recovery plan

Monday evening May 31 the European Union has received the approval of the 27 Member States to launch the historic common debt issuance process. The objective is to finance its recovery plan to alleviate the economic consequences of the pandemic.

Called “New generation EU”, this plan is the pillar of the way out of a crisis comparable to the time of post-war period. Before the end of May, the European Council announced in a statement that “it had formally received the approval notifications from all 27, allowing the Commission to borrow the name of the EU on the capital markets ”.

For a country like Italy, heavily in debt And with little leeway, help is crucial. In all, Mario Draghi’s government plans to add 235,000 million euros, the equivalent of 14% of its GDP, of which 85,000 million comes from transfers from the EU to its recovery plan.

The French government, meanwhile, has asked Europe for aid worth 40.9 billion euros. in non-repayable grants and does not plan to use the credits also provided for in the European recovery plan.

For him Spanish executive, from Moncloa, with the green light, the moment when part of the 140,000 million euros will be released is closer which make up the European Recovery Fund allocated to Spain. Almost half, 72,700 million euros, will be non-repayable grants for companies with projects capable of promoting the transformation of the country.

The money will finally be able to reach the coffers of the Member States. Digitization of the economy, ecological transition, but also administrative simplification and reform of the judicial system, the plans that each country has presented to justify such an important issue.

The effective implementation of this plan remains to be seen, knowing that several countries have repeatedly failed when it comes to spending aid funds. But, at least in the short term, individual European states and the EU will continue to actively support economies.

A crisis that clears up quickly

After the stock market panic caused by the coronavirus pandemic, an unprecedented situation, calm returns to the markets, reassured by the rapid and massive intervention of central banks.

Over the months, the economic outlook has improved despite the new epidemic waves. However, since the first confinement, in 2020, multinationals are accumulating significant losses: at the end of June they had not generated profits in the main markets, with activity declines of 20%.

Some of the recovery examples are significant. In France, for the first time since September 2000, and only for the second time in its history, the flagship index of the Paris Bourse (CAC 40) has crossed the symbolic threshold of 6,500 points, driven by the global economic recovery.

In some months, This index has erased traces of the COVID crisis to return to its all-time highs. Since the beginning of the year, climbed about 17%, one of the best results of the main world stock exchanges. It is set to post its fourth consecutive month of increase on Monday.

A historic first quarter

As the results season draws to a close on both sides of the Atlantic, the record comes as a surprise. The speed of the recovery was unthinkable by analysts, too pessimistic at the start of the year. Since then, they have updated their forecasts to become more and more positive. They now expect profits to exceed their 2019 level this year on both sides of the Atlantic.

The good news started with reports from big banks like JP Morgan Yes Goldman Sachs in the United States, or German Bank Yes BNP Paribas in Europe. Everyone exceeded expectations, thanks to the market rebound at the start of the year and the rise in interest rates. The banking sector as a whole has shone throughout the season, beating the consensus in 9 out of 10 cases.

Almost all sectors have done better than expected, with the exception of real estate and tourism, still in crisis, like the Germans TUI and Lufthansa. Beyond the banking sector, good surprises came in particular from the luxury and automotive sectors, with Continental, Daimler and Stellantis, despite the slowdown in production linked to the shortage of semiconductors.

The explanation

Vaccines and resumption of movement at borders. This is the answer, especially those related to the direct consequences of vaccination plans. In this sense, after a chaotic start and two months behind the United States and the United Kingdom, EU countries have effective programs in place. As of Sunday, May 30, 245 million Europeans had received at least one dose, or 46% of the adult population.

However, recovery will largely depend on the pace of border opening, especially in southern Europe, therefore linked to the success of the summer season.

Another crucial point is the implementation of the green pass, anti-covid passport tested in seven EU countries to date. France, Spain and Greece, for example, are already part of this initiative, to standardize systems and make July 1 a single entry and exit criterion among members.

This pass must provide vaccination test and a negative COVID-19 test, allowing to travel without quarantine. The summer tourist season should be able to unfold, not at full speed, and without dragging after another fall as 2020 with a restart of the pandemic.

Finally, there is the great political and economic agreement. Joe Biden’s election as President of the United States accelerated movement to find those paying for the crisis. The great countries have never been so close to getting along a minimum overall corporate tax rate.

The subject will be on the agenda of the G7 finance ministers meeting in London in June. A study published on Tuesday gives an estimate of the support the European Union may have to recover if such an agreement is reached.

“Depending on the scenarios and the type used, EU tax revenues linked to this tax could drop from 13% to 50%”, summarizes Gabriel Zucman, economist at the University of Berkeley, in California and director of the European Tax Law Observatory. at the origin of the study.

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