What is the future of the EU-economy after COVID-19?

The current situation in general

The common situation in each country in the sphere of economics is characterized by the general fears of global recession due to the fact that markets have taken a hammering, supply chains are violated, productions are stopped. Moreover, across Europe and whole globe shops, restaurants, hotels, bars are closed, cultural and sports events are cancelled or postponed till indefinite times. Consequently, investors and stock market volatility are driven by this uncertainty. However, the worst losses are now in the travel and tourism industries. Due to governmental border restrictions airlines, cruise lines, travel agencies and so on; they all take a hit during outbreaks.

Certainly, the focus and attention normally at the huge companies (brands and so on) and we hear often their prognoses or reports about losses, but in those situations, smaller manufacturers and businesses are more vulnerable and less resilient to the situation. In most cases, they can count only on support from the state, which depends on each country.

Reaction from the governments in the EU

Even within the EU, there are different levels of effect by the virus and various measures are taken in the financial sector. On March 18th the European Central Bank announced a new “Pandemic Emergency Purchase Programme” that will use 750 billion euros to purchase securities to help support the European economy. 

The Italian government was ready to spend 25 billion euros to protect its economy from the fallout. In France the government is warning of “severe” consequences for the economy, its central bank already has cut its growth forecast for the first quarter to 0.1%. In Spain, for now, the next-worst-affected European country, consequences can be even more dramatic since its economy was notably reliable on tourism. In Germany with the constant rise of the number of cases, the huge Corona aid package worth 156 billion Euro includes aid for Germany’s hospitals, for small businesses and freelancers was approved on March 25th. It was also developed to stabilize the economy in the crisis and to save jobs.

Immediate global outcomes

Straight after the outbreak beginning on December 31st, the global economy experienced a drastic collision, in different spheres:

• Global shares take a hit: the FTSE, Dow Jones Industrial Average and the Nikkei had a dramatic plunge.
• The travel industry: became the most affected area since airlines were forced to cut the flights. Even more influence with the EU ban for travellers from outside to enter the bloc for 30 days, which is an unprecedented move to protect its borders because of the coronavirus crisis. The analytics have estimated that up to 50 000 flights could be affected, with the biggest impact dropping on Air France.
• The tendency that the customers are buying much less and only essential stuff, affected all the consumer markets except food and medicine. 
• Factories & productions in some countries (e.g. China) were slowed down or closed, resulting in a decline in the number of produced goods and in a condition when the employees don't have work to do. 
• The oil price went down even further.
• Possible stagnation. The worlds economic growth is expected to slow down in 2020, according to the Organisation for Economic Cooperation and Development, the forecast for growth is only 2,4 % in comparison to the prior forecast 2,9 %.

Possible scenarios of development

Being in a state of uncertainty is rather hard, especially for businesses and manufacturers. There are various scenarios of the possible development, here is some in particular for the EU:

1. Fast recovery – the numbers show only drop 0.3 percentage points, meaning that dramatic changes (in particular no demand) will only occur in several sectors, such as tourism and travel. The other points that the domestic production will be mainly disrupted in the countries that introduced strict measures (for example, Italy, France, Spain).
2. Delayed cure – the decrease is foreseen in 0.6 percentage points, that caused by the break down of the important supply chains, especially between Asia and Europe and within Europe as well. The authors predict a temporary decline in consumption and investments.
3. Profound recession – decline in 3.6 percentage points (the worse figures in comparison to the whole world, USA and China) will be present if the extended outbreak takes place. And the full recovery will not be achieved until 2021. The worst impact will defeat the healthcare system, which will experience enormous capacity shortages, and production in some industries will be disrupted.

Summary

There are different scenarios and predictions of how the situation will evolve, but no one can say for sure, how it is going to be. The one certain thing is that our lives won’t be likewise, momentarily we are trying to rethink and reflect on the culture of mass production&consumption and all the negative consequences that it brings. For companies and businesses, it is time to take modern, innovative decisions, strengthen the domestic supply chain and estimate the efficiency and usefulness that their businesses provide in current conditions. Despite the fact that governments are making efforts to support their economies and people, it is likely that coronavirus fallout will be uneven (also within the EU), and on a personal level, the inequality gap probably will extend even more.