Brussels, Belgium, April 6 – The IMF said Tuesday the eurozone economy would expand faster than previously expected in 2021, but Europe will be slower than the US to recover from the pandemic shock.
In its latest outlook for the world economy, the International Monetary Fund said that gross domestic product in the 19 countries that use the euro would grow by 4.4 percent this year.
The number was up by 0.2 percentage points from a forecast in January, but trailed the institution’s new prediction for the US, where GDP growth is now expected to hit 6.4 percent, a big revision upwards of 1.3 percent.
Worryingly, the IMF’s outlook for Europe was much lower than it had anticipated six months ago, before the second and third waves of Covid-19 cases brought a fresh round of restrictions, punishing the economy.
And, while the Chinese economy already returned to pre-pandemic health last year and the United States is expected to do so this year, Europe will not do so until mid-2022, the IMF said.
“A year is a long time in the grim duration of this disease,” acknowledged eurogroup chief Paschal Donohoe, who is also Irish finance minister, in an op-ed last week for the Financial Times.
The IMF said the gaps with the US could be attributed to multiple factors, including different responses to the pandemic, with Europe resorting to far tougher restrictions.
Also to blame, the body said, were “pre-existing trends, and structural rigidities predating the crisis,” with Europe’s economy being seen as less adaptable than that of the US.
“In the United States, the first shock in 2020 was smaller and the 2021 rebound was greater. There were no second or third wave confinements either, so the economic impact was weaker,” said Charlotte de Montpellier of ING bank.
Economists also point to a more feeble response in Europe to fighting the recession than what has been delivered in the US, especially under the new Biden administration.
– No ‘cavalry’ for Europe –
The EU is still struggling to implement a 750 billion euro ($885 billion) stimulus plan that would be added to individual national rescues that were unveiled last year.
It was agreed in July, ratified in December, but still needs a final sign off from the 27 EU member states, which might be delayed even further after a court decision in Germany.
“I see that the American cavalry is arriving on time,” French Finance Minister Bruno Le Maire said last week. “I wish the European cavalry would also arrive on time.”
The IMF said that the ambition of the US response was so great, including a $1.9 trillion stimulus as well as an infrastructure plan, that “spillover” effects to Europe and other trading partners were to be expected.
“The Americans are handing out money immediately to consumers: $1,400 dollars per person, or $5,600 for a family, which is considerable,” said Philippe Waechter, director of economic research at Ostrum Asset Management.
Waechter acknowledged that Europe has cushioned the shock of the pandemic with short-time working measures that have saved jobs, “but at no time has there been any momentum created by economic policy.”
Donohoe, who chairs the monthly meetings of eurozone finance ministers, defended Europe’s choices.
Europeans, he argued, have for example maintained public service jobs while local governments in the US have laid off 1.3 million employees.
National spending plans in Europe have brought “unprecedented levels of budgetary support,” he said.