The crisis pause in economic growth throws the world back a few steps, promising wasted years, if not decades. To catch up, you need to run even faster – and that’s the problem.
Scientists calculated that the world emerges from each subsequent crisis for longer and longer. On average, five years after major financial shocks, the GDP of developed countries turns out to be about 9% less than what it would have been if growth had continued without a break for the crisis.
A decline in GDP – that is, the total volume of production, consumption, investment, and exports – is fraught with increased poverty, stratification of society, and a deterioration in the quality of life that threatens social, political, and international tensions.
Therefore, the pace of recovery in Europe is vital for the world because the EU is the central and most expensive market on the planet: almost half a billion people and $ 14 trillion in output and consumption of goods and services per year.
On the other hand, countries with powerful industries and exports benefit from a rebound in global demand. Germany recently slightly improved its forecast for the current year and now expects GDP to contract by 5.8%, while the EU as a whole expects a record decline in the economy of 8.3%.
France is also preparing to improve the forecast. However, subordinates immediately warned that it was too early to rejoice.
“The financial restoration was seen at the end of the second quarter after the restraints appeared, but from now until the end of the year, its pace will slow down,” – said the French statistical agency Insee in a recent survey.
As a result, despite the “mostly technical” growth of 17% in July-September, the economy by autumn will be 5% less than pre-crisis.
Let it be “technical”, but 17% of quarterly growth would seem impressive – if a month ago the same Insee had not promised 19%. And this is not the only case of a forecast revision for the worse.
“We are unlikely to be able to quickly return to pre-crisis levels, as some expected,” Reuters quoted the economist of the German bank Landesbank Baden-Württemberg Jens-Oliver Niklash and the economy will start to run dry. “
The authorities understand this and are not going to refuse to dope. On Friday, finance ministers of 19 eurozone countries, which make up the backbone of the EU, met face to face for the first time since February and promised not to curtail anti-crisis spending.
The coronavirus and quarantine have plunged the European economy – the second largest in the world after the American one – into the most profound crisis in its entire post-war history.
The EU is the most affected by the coronavirus in the West and has introduced the most stringent quarantine. According to the latest data from Eurostat, the EU economy contracted by 3.5% in the first three months of 2020.
At this rate, it will fall by 13% over the year, and Europe will miss almost 2 trillion euros. And this even though Europe will have to spend about the same amount on the fight against the crisis.
The consequences of the first quarter are just a sign of future destruction. The widespread quarantine fettered the EU only in March, and the first blow to the pockets of citizens and businesses will fall on the current second quarter. If the virus does not decrease in the second half of the year and the economy does not begin to overcome, the overall loss will be even more notable.
The European Central Bank admits that the fall in GDP by the end of the year will reach 12% in the countries of the euro circulation. The Eurozone comprises 19 of the 27 EU countries and accounts for 85% of the EU economy or 12 trillion of the 14 trillion euros of total GDP.
More than half of Europe’s small and medium-sized businesses may not make it through the following year, a McKinsey survey found. McKinsey surveyed in August 2020 among more than 2.2 thousand small and medium enterprises in 5 European countries – France, Germany, Italy, Spain, and the UK.
Around 70% of those surveyed reported a drop in income as a result of the pandemic, which has led to serious business consequences. Every fifth respondent is afraid of not repaying loans and admits the dismissal of employees. Another 28% are worried that they will have to cancel new projects aimed at business growth.
Italy and Spain were among the countries most affected by the coronavirus – 30% and 33% of respondents reported a substantial reduction in income there, respectively. In Germany, this figure is 23%.
Even with current income levels maintained, 55% of SMEs fear they could close by September 2021. With a decrease in income by 10-30%, 77% of the surveyed companies may not survive next year. If revenue increases by 10-30%, 39% of respondents remain at risk of closing.
Almost 20% of respondents applied for state support. Another 30% plan to do so soon. In France and Italy, the latter figure is higher – 35%, in the UK and Germany – 20% and 25%, respectively.
The prospect of bankruptcy in the next six months is considered as real by 11% of respondents, and in Italy and France, there are more pessimists – 21% of respondents. Most of the problems are in logistics: 22% of companies from this area have declared possible bankruptcy. It is followed by agriculture, real estate, public catering, retail, and wholesale trade – indicators for these sectors range from 13% to 15%.