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Europe’s COVID recovery: economy recovers but risks remain

The first episode of the new Real Economy series is about the economic outlook, based on the European Commission’s autumn forecast.

The European economy is on track to grow faster than previously forecast, but the path to recovery remains unclear amid uncertainties surrounding the COVID Omicron variant, rising inflation and supply chain shortages. Real Economy takes a look at the latest forecasts for the European economy for 2022 and beyond.

The European economy: the current outlook

Gross domestic product is expected to grow 5 percent by the end of 2021 in both the EU as a whole and the eurozone. That’s slightly more than the previous forecast of 4.8 percent.

Economic growth of 4.3 percent is expected for 2022. More moderate growth of 2.5 percent for the EU and 2.4 percent for the euro zone is then forecast for 2023. However, this growth is unevenly distributed across the EU. But – and this is a big but – it all depends on how the COVID-19 pandemic plays out. The surge in cases and the omicron variant has rattled markets, and new government restrictions could hamper economic activity, while businesses risk facing further shortages and supply chain disruptions.

Italy: survive the pandemic

The Italian economy is forecast to grow 6.2 percent but fears supply chain issues could jeopardize the recovery. One company struggling with such headwinds is electric bike maker Atala. The company, based in Lombardy in the north of the country, has seen a 60 percent increase in orders since the start of the COVID-19 crisis, but is struggling to meet this demand as lead times for the delivery of components have increased sharply .

“We increased production by 36 percent on average in 2020, and for 2021 we expect growth of about 10 to 15 percent. It could have been even higher in 2021, but the lack of components has reduced the potential for expansion,” says Atala Managing Director Massimo Panzeri. And he goes on to say that a lack of key components is preventing his company from further expansion.

Investing in clean transport is one of the top priorities of the European recovery plan. Atala hopes to capitalize on this by bringing back outsourcing in Turkey. But that won’t solve all the problems, according to Panzeri:

“If we bring back the welding or painting, but we are missing aluminum or carbon rods, battery cell components or steel that is not made in Europe, then we are only shifting the problem. In my opinion, this has to be tackled at a political and European level change must not be limited to one part of the chain, but must start with the raw material.”

keep talents

In Italy, as in the rest of Europe, shortages of essential materials and goods have fueled fears of accelerated inflation. The country invests more than any other EU country. A total of 235 billion euros over five years, including 191.5 billion from the EU economic stimulus program. Italy received the first tranche of 25 billion euros in August.

But there is not only a lack of goods and materials. Another problem many companies are currently facing is attracting and retaining a skilled workforce. Argotec, based in Turin, manufactures microsatellites for the space industry. One of their products, LICIACube, is currently being used in NASA’s DART project to deflect asteroids.

To meet booming demand, the company wants to double its workforce but says more needs to be done to retain young talent.

“The economy, especially the Italian economy, is experiencing a kind of renaissance, as can be seen from the statistics, analyzes and forecasts. The most important thing in this case is to think about the future, and that means investing. We want together with government keep young people going abroad for research and development,” explains Argotec Managing Director David Avino.

Creating a more attractive business environment is one of the priorities of the European economic stimulus plan, alongside green mobility, clean energy and digitization.

The specter of inflation

The rapid revival of the economy has created bottlenecks in the supply chain. This and the rapid increase in energy prices have pushed up inflation. In the euro zone, it was -0.3 percent at the end of 2020. In the third quarter of 2021, it rose to 2.8 percent.

A further increase is expected for 2022. For a global perspective on Europe’s economic prospects, Real Economy’s Naomi Lloyd spoke to OECD Chief Economist Laurence Boone.

Naomi Lloyd, Euronews:

“We have seen a huge increase in the number of coronavirus cases. What does this mean for the recovery in Europe?”

Laurence Boone, OECD Chief Economist:

“The recovery in Europe is in full swing, but of course the prospects have become more uncertain as a result.”

euronews:

“How does the OECD rate this compared to the global outlook?”

Laurence Boone:

“European economies are doing reasonably well compared to all other countries. It was interesting to see how the different countries in Europe have been protecting their citizens. Governments have been paying companies to keep employees. So if the economy When you start working again, you go right back to work. It’s very different in the US. Governments have sent checks to households so they have money to spend but are out of work. We’re now seeing the job market in Europe almost recovered while still lagging behind in the US.”

euronews:

“How concerned are you about the new variant and its impact on the economy?”

Laurence Boone:

“You can look at this in two ways. Either it will slightly delay the recovery and increase supply chain congestion, or it is a more dangerous variant and that could really lead to a slowdown in recovery and, surprisingly, a drop in prices.”

euronews:

“How worried are you about the current rise in inflation?”

Laurence Boone:

“If we resolve the health situation by the summer and things return to normal, then we are quite confident that supply tensions will ease and inflation will gradually come down. If we don’t manage to get a handle on the health situation and the shortages well into 2022, 23 then we will be more concerned that these inflationary pressures will last longer.”

Euronews: “Do we have any reason for Christmas cheer?”

Laurence Boone:

“Of course we have a reason to celebrate Christmas. First of all, we – you know, if you think about it – just a year ago we were told that after about 9 months a vaccine has been found. Normally it takes 10 years, a vaccine In this crisis, we have managed to protect as many people and businesses as possible and there has never been such a high level of awareness of the climate problem. So I think we are on the right track.”

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