Europe: Rising COVID-19 cases and slow vaccination rollout threaten a smooth recovery – Standard Chartered

COVID-19 infection rates remain elevated across Europe after the festive period while high-frequency data suggest a sharp fall in economic activity in Q1 as many countries are forced to reintroduce strict social distancing measures. According to economists at Standard Chartered, euro-area countries will have to accelerate vaccinations if they are to re-open their economies by the second quarter.

See: EUR/USD year-end target of 1.2800 – MUFG 

Key quotes

“We expect euro-area GDP growth to have contracted by 7.7% in 2020 before recovering to 4.0% in 2021 on the back of mass vaccine rollouts and an end to covid-related restrictions. However, rising infection rates, the reintroduction of lockdowns and weakening economic activity, as suggested by high-frequency data, pose downside risks to our 2021 forecast. There is a significant risk of negative GDP in Q4-2020 and Q1-2021, leading to a double-dip recession after the downturn in H1-2020.”

“Efforts to contain the second wave of the virus in October and November were largely unsuccessful, forcing governments to reintroduce strict social distancing measures – and in some cases full lockdowns – to prevent a severe third wave. Google mobility data shows yet another slump in economic activity as the number of infections and deaths heads upwards. Hospitality and retail sectors are likely to be hit particularly hard as people shield indoors.”

“The European Commission has so far authorised two vaccines, Pfizer and Moderna, in the fight against COVID-19. While this has provided the continent with some much needed new year optimism, the light at the end of the tunnel is still far ahead. The EU currently lags the US and the UK in vaccination rollout. A strong H2-2021 rebound would require greater coordination and urgency among members of the bloc.”