17
Nov
2020

The European economic recovery scenario in the eyes of Hani Zeini

It is impossible to predict the economic effects of lockdowns, and those who try to are playing the fool’s game. Believe it or not, the COVID-19 recession is manmade, and its scale is truly unprecedented in history. Leaving aside the debate whether the virus is laboratory grown, it is hard to deny that the crisis we are going through is the handiwork of our deeds. Never before have we experienced a recession of this magnitude, nor have we seen policy responses that have set a new benchmark in fighting the crisis that aims at cushioning the livelihoods of people. Going by the economic devastation scale, Hani Zeini does not have any doubts that it is the biggest recession in a century. 

The collapse comes to an end feels Hani Zeini

The initial shock and trauma are now a thing of the past. With the policymakers’ efforts, the marks of the initial collapse have begun to disappear gradually, indicating the end of the collapse. Looking across the economic scenario across the globe, there are indications that the European GDP (Gross Domestic Product) is now somewhere between 15 and 30 percent down from the pre Covid19 levels during the beginning of 2020. Countries like Russia and Turkey, where the virus spread much later, have suffered less than northern and Central Europe and France and Southern Europe, which were the most hit by the pandemic. 

V or W- shaped recovery?

As countries come out from the lockdown mode, it will lead to the stabilization of activity. However, at deficient levels, that might seem depressing, and some areas will rebound strongly and experience growth. However, countries must be cautious about a second or third wave of infections soon upon easing the lockdown measures as many parts of Europe and countries like the UK are currently experiencing. Going for fresh lockdowns for an extended period would mean that the V-shaped recovery trajectory that most people were expecting might change into a W-shaped recovery.



What is a W-shaped recovery?

There are three models of recovery of recession- U-shaped recovery, V-shaped recovery, and W-shaped recovery. W-shaped recovery is characterized by rapid economic recovery, but the gains are short-lived as there is a second round of decline followed by subsequent recovery.  Since the deterioration happens twice, this is also known as a double-dip recession because if you join the dots of rising and fall, it gives the shape of the letter W.

Eurozone GDP forecast

Despite hoping for impressive growth in 2021, a GDP contraction across Europe is likely to be around 13% in 2020. By the end of 2021, the GDP level should be about 4 percent below the pre- COVID-19 levels. Central Europe that suffered less is likely to touch the pre-Covid19 levels of GDP by the end of 2021. GDP drop for Russia and Turkey in 2020 will be 5.5% in 2020. Assuming that the support from external financing remains firm, Turkey will make a faster comeback while it will take a longer time for Russia to regain its earlier GDP. 

At the end of the crisis, the GDP drop would be the same as the Great Recession of the 1930s, but the economy will bounce back much faster.

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