Europe was blighted by a fresh wave of lockdown measures during January in response to rising Covid-19 infection rates. Economic activity in the eurozone is unlikely to recover to pre-pandemic levels until at least 2022, according to the IMF, which downgraded its forecast for economic growth in the euro area in 2021.
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- Germany’s economy contracted by 5% over 2020
- The EMA approved the Oxford/AstraZeneca vaccine
- Eurozone CPI remained stable at -0.3%
Europe was blighted by a fresh wave of lockdown measures during January in response to rising Covid-19 infection rates. Economic activity in the eurozone is unlikely to recover to pre-pandemic levels until at least 2022, according to the International Monetary Fund (IMF), which downgraded its forecast for economic growth in the euro area in 2021 from 5.2% to 4.2% for 2021. In comparison, the European Central Bank (ECB) forecast the eurozone’s economy to expand by 3.9% in 2021, following a contraction of 7.3% in 2020. During January, the Dax Index fell by 2.1%, while the CAC 40 Index declined by 2.7%.
“Business sentiment in Germany weakened during January”
The ECB expects the recent wave of coronavirus infections and the subsequent lockdowns across the region to hamper economic recovery in the short term. Sentiment was also affected during the month by controversy over the eurozone’s vaccination programme. The European Medicines Agency (EMA) approved the Oxford/AstraZeneca vaccine for use across the eurozone at the end of January. Looking ahead, ECB President Christine Lagarde predicted a resurgence in activity once the impact of the pandemic starts to recede, leading to a stronger inflationary backdrop underpinned by “accommodative” fiscal and monetary policies. The annualised rate of inflation in the euro area remained stable at -0.3% during December, according to Eurostat.
France’s economy contracted by 8.3% over 2020 as a whole; in contrast, Germany’s economy performed somewhat better than previously expected, shrinking at an annualised rate of 5%. Germany’s performance in 2020 proved stronger than in 2009, during the global financial crisis, when it contracted by 5.7%. Over 2020, private consumption fell by 6% and exports dropped by 9.9%, while imports posted an 8.6% decline.
Following a short-lived recovery in December, business sentiment in Germany weakened during January, according to the Ifo Institute, as the “second wave” of Covid-19 infections brought the country’s recovery to a halt. Optimism on trade “nosedived”; expectations amongst manufacturing firms proved “notably less optimistic”, and Ifo’s manufacturing index posted its first monthly decline following eight consecutive increases. On a brighter note, however, the Ifo Institute reported a marked improvement in sentiment amongst German exporters later in the month, and attributed this “cautious optimism” to “clarity on Brexit and the US presidency, a robust industrial economy, and the start of vaccination campaigns worldwide”.
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