COVID-19 puts Europe on a knife-edge

Source:
ITTO/Fordaq
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The COVID-19 situation in Europe is on a knife edge. The numbers of new cases and deaths have stabilised and are beginning to decline in the worst affected countries, which include Italy, the UK and Spain. This has led to calls for the lockdown measures, which have been in place now throughout large parts of Europe for over six weeks, to be eased as the detrimental effects on economic activity, education, mental health and general well-being are becoming increasingly obvious.

Against this, the authorities must balance the very real possibility that easing of the lockdown measures too soon could trigger a renewed rise in coronavirus cases.

The reality of these concerns was confirmed following the German government’s decision to begin relaxing restrictions on 20 April to allow small businesses to open. Germany now faces the prospect of having to restore stricter lockdown measures as its number and rate of coronavirus infections have grown again.

Whatever decisions are taken now, the economic effects look certain to be nothing short of catastrophic. The IMF latest projection, issued on 14 April, is that world output will decline 3.0% this year, down 6.1% in advanced economies and 1% in emerging and developing economies. IMF observe that "for the first time since the Great Depression both advanced economies and emerging market and developing economies are in recession".

IMF warn that this is a baseline scenario and that "the pandemic may not recede in the second half of this year, leading to longer durations of containment, worsening financial conditions, and further breakdowns of global supply chains".

Under these conditions, say the IMF, global GDP may fall even further, possibly by an additional 3% in 2020 if the pandemic is more protracted this year.

Western Europe has been the epicentre of the pandemic in March and April and 2020 IMF projections reflect this fact. The steepest declines in GDP this year are expected in Italy (-9.1%) and Spain (-8.0%). Large declines are also forecast in France (-7.2%), Germany (-7.0%) and the UK (-6.5%). Total eurozone GDP is expected to fall 7.5% in 2020.

Prospects for global trade are equally grim. The WTO’s trade forecast report for 2020 issued earlier in April projects that total world trade will fall by between 13% and 32% this year.

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