Europe’s Top Virus Repellers Can’t Dodge Pandemic’s Economic Hit
Europe’s Top Virus Repellers Can’t Dodge Pandemic’s Economic Hit
(Bloomberg) -- The European Union’s eastern wing outshone the west in containing Covid-19. The economic hit, however, is proving harder to dodge.
Early social-distancing measures and speedy lockdowns helped minimize loss of life as fatalities in the likes of Spain and the U.K. soared. Boasting the bloc’s fewest deaths per capita was Slovakia, which closed its schools, shops and borders earlier than all member-states bar Italy.
Slovakia, however, is at the wrong end of the economic rankings.
While cheap labor and membership of the euro area has turned the nation of 5.4 million people into a buzzing hub for auto production, that rapidly became a disadvantage as lockdowns sapped global demand for cars and disrupted cross-border supply chains.
Plunges in employment and gross domestic product aren’t much better than the countries worst-hit by the virus. Slovenia and the Czech Republic also suffered more than Germany.
Indeed, eastern Europe as a whole is braced for its worst recessions since the collapse of communism.
That’s despite the fact that in recent months the region succeeded in shifting its economic model away from low-cost exports and toward domestic demand. Breakdowns of first-quarter GDP data reveal consumers who’d been enjoying record jumps in wages reined in their spending and are unlikely -- alone -- to be able to blaze a trail back to growth.
The upshot is turning once again to exports. But with the euro area the No. 1 buyer and steep recessions unfolding there, eastern Europe must wait for a recovery beyond its borders.
One crumb of comfort is employment. The region entered this crisis with with record-low jobless rates and acute shortages of workers in places like the Czech Republic. As such, unemployment isn’t forecast to hit the same heights as in western Europe.
Another plus for domestic workers is the mass departure of migrants when the virus took hold. Poland saw an unprecedented exodus of Ukrainians who could barely arrive fast enough to fill vacant positions only months before.
Eastern Europe, however, can be a region of extremes.
Its worst-affected economy this year will be Croatia, according to the European Commission, which predicts a huge slump driven by a lack of visitors to the nation’s Adriatic Sea beaches. Croatia is the EU member-state that leans most on tourism and is hoping part of the summer season can yet be saved.
Yet Poland, according to the Commission, will be the EU’s star performer -- notching a comparatively mild contraction of 4.3%. The bloc’s biggest eastern economy has a history of outdoing the rest of the continent. In the wake of the 2008 financial crisis, it was the only EU country to maintain expansion throughout. This time, a bumper bailout package to complement generous government benefits will provide a cushion.
“Poland’s economy won’t escape a sharp contraction in GDP this year but we think the hit will be less severe than elsewhere in Europe,” Capital Economics analyst Liam Peach said in a report to clients. “By the end of 2022, we expect Poland’s economy to be 5% larger than its pre-virus level, whereas output in the eurozone is likely to be 2% smaller.”
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