From vaccines to V-shaped recovery in Europe
Skip to main content
  • Home
  • Economy
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Features
  • Epaper
  • More
    • Subscribe
    • COVID-19
    • Bangladesh
    • Splash
    • Videos
    • Games
    • Long Read
    • Infograph
    • Interviews
    • Offbeat
    • Thoughts
    • Podcast
    • Quiz
    • Tech
    • Archive
    • Trial By Trivia
    • Magazine
    • Supplement
  • বাংলা
The Business Standard

Wednesday
July 06, 2022

Sign In
Subscribe
  • Home
  • Economy
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Features
  • Epaper
  • More
    • Subscribe
    • COVID-19
    • Bangladesh
    • Splash
    • Videos
    • Games
    • Long Read
    • Infograph
    • Interviews
    • Offbeat
    • Thoughts
    • Podcast
    • Quiz
    • Tech
    • Archive
    • Trial By Trivia
    • Magazine
    • Supplement
  • বাংলা
WEDNESDAY, JULY 06, 2022
From vaccines to V-shaped recovery in Europe

Global Economy

Alfred Kammer, IMF Blog
14 April, 2021, 07:10 pm
Last modified: 14 April, 2021, 07:20 pm

Related News

  • No experience, no resume, you're hired! Hotels fight for staff
  • Belarus leader stands with Russia in campaign
  • Ukraine war to shift to Donetsk after fall of Luhansk; Russia claims major victory
  • The great European energy market bailout is only getting started
  • Monkeypox cases triple in Europe, WHO says, Africa concerned

From vaccines to V-shaped recovery in Europe

The biggest worry over the medium term is economic scarring—output that never recovers because people who lost jobs during the pandemic cannot find new one

Alfred Kammer, IMF Blog
14 April, 2021, 07:10 pm
Last modified: 14 April, 2021, 07:20 pm
PHOTO: GABRIELLE CEZARD/SIPA/NEWSCOM via IMF Blog
PHOTO: GABRIELLE CEZARD/SIPA/NEWSCOM via IMF Blog

One year into the pandemic, Europe finds itself at another turning point. New waves of infection are hitting the continent, requiring new lockdowns. But, unlike last year, safe and effective vaccines are now available. While the pace of vaccination is still slow, an end to the pandemic is in sight.

Reflecting the periodic infection waves and the pace of vaccinations, the economic recovery in Europe is still halting and uneven. While industrial production has returned to pre-pandemic levels, the service sector is still contracting.

While the pace of vaccination is still slow, an end to the pandemic is in sight.

However, looking ahead, we project that Europe's economic growth will rebound by 4.5 percent this year. Assuming that vaccines become widely available this year and throughout next, as still expected, growth is projected at 3.9 percent in 2022. This will bring Europe's output back to its pre-pandemic level but not to the path expected before the pandemic.

Virus mutations and vaccination delays are the prime concern at this time. The biggest worry over the medium term is economic scarring—output that never recovers because people who lost jobs during the pandemic cannot find new ones. This can happen because gaps witnessed in education and worker training are never recovered, deferred productive investment remains shelved, or resources remain in declining sectors rather than shifting to expanding ones.

Against this backdrop, the number one priority is to boost vaccine production. This is critical not only for Europe but also the world because Europe is a hub for vaccine production and exports. Investing in such an effort will pay off. Of course, faster vaccine production will need to be coupled with national efforts to quickly distribute these vaccines, getting them out of factories and to people.

The way out

At the same time, policymakers need to continue supporting the economic recovery. The faster the recovery, the less scarring experienced by people and businesses. And fiscal policy needs to play an increasing role for economies where monetary policy—with interest rates at their lowest—becomes less effective in boosting output.

But the nature of support will need to shift:

  • Labor market policies have provided unprecedented lifelines to the unemployed or underemployed. At their peak, job retention policies supported 68 million jobs. These should remain in place while economic activity remains soft but should gradually shift toward helping workers find new opportunities in emerging sectors. Some examples include policies that promote job search, enhance training and reskilling programs, and provide well-targeted hiring subsidies.

  • Corporate sector support policies should become more targeted toward viable firms and focus on strengthening firms' solvency instead of simply providing liquidity. Based on data available through the fall of 2020, we estimate that viable firms will require an increase in equity equivalent to 2-3 percent of GDP to remain solvent, with 15 million jobs at risk.

  • Financial policies should continue to enable banks to keep credit flowing. However, going forward, nonperforming loans need to be adequately provisioned, while banks are given time to replenish capital buffers as crisis measures expire.

A fiscal booster shot

In our latest Regional Economic Outlook Update for Europe, we analyze the impact of additional fiscal measures to support such a shift in policies. These measures could include additional transfers targeted at households in need, hiring subsidies to reintegrate the unemployed faster, temporary investment tax credits to bring forward private investment, and equity support schemes for viable firms in need of capital. This is not a call for a package that boosts spending indiscriminately and permanently, but for a well-targeted and temporary shot in the arm of both demand and supply.

We find that this additional support—set at a level of 3 percent of GDP over 2021−22—could lift GDP by about 2 percent by the end of 2022. Over the medium term, the robust supply side effects of these measures would cut the impact of scarring by more than half. The costs would pale in comparison to the benefits. This package of measures would also offer greater help for low-income households and would entail fewer side effects than additional monetary stimulus. Moreover, it would bring inflation closer to target in many countries and help rebuild monetary policy space.

Finally, fiscal support should also be redeployed to accelerate the transformation of the economy, including through infrastructure investment, especially in green and digital technologies. The European Union has broken new ground with the creation of the Next Generation EU plan, which will provide centralized support to member states—over half in the form of grants. This program will accelerate growth and increase productivity, especially if coupled with growth-enhancing structural reforms.

In short, with hard work on vaccine production and distribution, continued support for lives and livelihoods, and innovative policies to combat economic scarring, Europe can have a "V-shaped recovery" that is fairer, greener, smarter, and more resilient.


Alfred Kammer is the Director of the European Department at the International Monetary Fund


Disclaimer: This article first appeared on IMF Blog, and is published by special syndication arrangement.

Top News / World+Biz

IMF Blog / Europe / Covid-19 Economic Recovery / V-shaped recovery

Comments

While most comments will be posted if they are on-topic and not abusive, moderation decisions are subjective. Published comments are readers’ own views and The Business Standard does not endorse any of the readers’ comments.

Top Stories

  • Picture: Mohammad Minhaj Uddin/TBS
    Probe committee finds owners, management authority of BM Depot to be ‘negligent’
  • The government controls traffic growth with a series of quotas, taxes and duties that can push up the cost of a car.Photographer: Nicky Loh/Bloomberg
    Singapore's sky-high car prices are warning for global cities
  • FBCCI for electricity rationing to keep production uninterrupted
    FBCCI for electricity rationing to keep production uninterrupted

MOST VIEWED

  • Somali displaced girl Sadia Ali, 8, drinks water from a tap at the Kaxareey camp for the internally displaced people in Dollow, Gedo region of Somalia May 24, 2022. Picture taken May 24, 2022. REUTERS/Feisal Omar/File Photo
    World hunger rising as UN agencies warn of 'looming catastrophe'
  • The Gap logo is seen on the front of the company's store in Paris, France, July 1, 2021. REUTERS/Sarah Meyssonnier/File Photo
    Reliance to partner with Gap for India stores
  • Skyscrapers in The City of London financial district are seen in London, Britain, September 14, 2020. Photo: Reuters
    UK markets brace for prolonged political uncertainty
  • An exterior view shows a new pumping station of the Caspian Pipeline Consortium (CPC) near the city of Atyrau, Kazakhstan on 12 October 2017. Photo: Reuters
    Russian court orders one of world’s largest pipelines to suspend operations
  • The government controls traffic growth with a series of quotas, taxes and duties that can push up the cost of a car.Photographer: Nicky Loh/Bloomberg
    Singapore's sky-high car prices are warning for global cities
  • Russian Presidential Spokesman Dmitry Peskov. Photo: Tass.
    Kremlin slams Japan's 'unfriendly' stance amid oil price cap talk

Related News

  • No experience, no resume, you're hired! Hotels fight for staff
  • Belarus leader stands with Russia in campaign
  • Ukraine war to shift to Donetsk after fall of Luhansk; Russia claims major victory
  • The great European energy market bailout is only getting started
  • Monkeypox cases triple in Europe, WHO says, Africa concerned

Features

The sea beach in Kuakata. Photo: Syed Mehedy Hasan

Five places in Southern Bangladesh you could visit via Padma Bridge

10h | Explorer
Genex Infosys Limited is the country's largest call centre with more than 2,000 seats and full-set equipment. Photo: Courtesy

How domestic demand made Genex Infosys a BPO industry leader

11h | Panorama
The OPEC+ group of 23 oil-exporting countries met virtually on Thursday. Photo: Bloomberg

OPEC+ did its job, but don’t expect it to disappear

1d | Panorama
Mirza Abdul Kader Sardar with AK Fazlul Haque, Chief Minister of Bengal, at Haque's reception at the Lion Cinema, Dhaka, 1941. Photo: Collected

Panchayats: Where tradition clings to survival

1d | Panorama

More Videos from TBS

Behind the story of 'Aske Amar Mon Bhalo Nei'

Behind the story of 'Aske Amar Mon Bhalo Nei'

6m | Videos
Is Donbas Putin’s next target?

Is Donbas Putin’s next target?

3h | Videos
Hajj Journey: it took more than one year to complete the Hajj

Hajj Journey: it took more than one year to complete the Hajj

4h | Videos
Photo: TBS

Cristiano Ronaldo looking for a new challenge

9h | Videos

Most Read

1
Photo: Collected
Africa

Uganda discovers gold deposits worth 12 trillion USD

2
TBS Illustration
Education

Universities may launch online classes again after Eid

3
Meet the man behind 'Azke amar mon balo nei'
Splash

Meet the man behind 'Azke amar mon balo nei'

4
Build Dhaka East-West Elevated Expressway, relocate kitchen markets: PM
Bangladesh

Build Dhaka East-West Elevated Expressway, relocate kitchen markets: PM

5
File Photo: BSS
Energy

India pulls out of LoC funding for part of Rooppur power transmission work

6
Illustration: TBS
Interviews

‘No Bangladeshi company has the business model for exporting agricultural product’

EMAIL US
contact@tbsnews.net
FOLLOW US
WHATSAPP
+880 1847416158
The Business Standard
  • About Us
  • Contact us
  • Sitemap
  • Privacy Policy
  • Comment Policy
Copyright © 2022
The Business Standard All rights reserved
Technical Partner: RSI Lab
BENEATH THE SURFACE
A customer checks a knife at a blacksmith’s shop at the capital’s Karwan Bazar. Knives and other Qurbani tools are in huge demand as the country prepares to celebrate Eid-Ul-Azha. Photo: Rajib Dhar

Contact Us

The Business Standard

Main Office -4/A, Eskaton Garden, Dhaka- 1000

Phone: +8801847 416158 - 59

Send Opinion articles to - oped.tbs@gmail.com

For advertisement- sales@tbsnews.net