July 2, 2022
  • July 2, 2022

European Central Bank drops predictive pessimism

By on June 12, 2021 0
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The European Central Bank has made the biggest revision of its macroeconomic outlook for the coming years since the start of the pandemic. Analysts have clearly raised the expected price of GDP, which, according to forecasts today, will be in about two years at the level which would have been without the crisis. As the graph shows, economists are slowly realizing that the long-term effects of the pandemic don’t have to be negative.

The European Central Bank publishes its forecasts quarterly in the last month of each quarter. They are followed closely, as are the analyzes of all central banks, because they show how the economy is perceived by those responsible for managing its stability and controlling inflation.

The bank expects eurozone GDP to grow to 4.7% this year, 4.5% next year and 2.1% within two years.In total, GDP in 2020-23 is expected to increase by 4.1%. (We must add a decrease for last year), while in March the total forecast was 2.9%. Contrary to appearances, the criticism is solid. It is no coincidence that after the publication of the European Central Bank and the conference of President Christine Lagarde, the euro has strengthened against the dollar. The move was fairly weak, but nonetheless, the positive tone of the ECB’s announcements was offset by pro-dollar data on ultra-high inflation in the United States, which reached 5% in May.

Photo / / Paul Bezenso

It is worth paying attention to an important fact. According to current forecasts, the GDP of the euro area in 2023 will be only 1%. Below the linear trend before the pandemic (i.e. the level that would have been reached without the pandemic). By way of comparison: three years after the financial crisis of 2008 (that is to say in 2011), the GDP of the euro area was 5.5%. without the previous trend of this crisis. This means that the pandemic crisis has done much less damage to the economy than the financial crisis, and five times more damage to the economy.

Why are the long-term effects of the pandemic so much less than the effects of the financial crisis? There are two reasons. First, the epidemic is a purely external crisis, that is to say caused by factors totally independent of the economy. Therefore, this does not cause deep structural changes, the need for a significant transfer of resources between industries and political conflicts over who is responsible. Second, the political response to the pandemic crisis was the result of lessons learned from the financial crisis. At that time, the fiscal stimulus in the economy was very short-lived and after its withdrawal demand faded and unemployment remained high, which led to a wave of revolutions and small political revolutions. Economists and politicians have come to conclusions and this time shot three times the size of the financial artillery, which will also last much longer.

Before being totally optimistic, that is to say the conviction that we will soon be able to fully compensate for all the losses caused by the epidemic, we are in fact only stopped by the fear of a possible relapse as a result of mutation of the virus. And the vaccinations are very slow.

How seriously should these concerns be taken? I don’t think they should be taken lightly. Something that has bothered me lately is the rapidly rising tide of the pandemic in the UK. Not only is the number of infections increasing there, but the number of hospitalizations is also increasing, although the vaccination rate is very high – almost half of the population is vaccinated with two doses (for comparison, in Poland, it is less than a quarter, and 50% of good winds can reach the end of the summer). Experts are now awaiting indications on the sustainability of the increase in hospitalizations, and whether it will result in a blockage of the hospital system and lead to an increase in the number of deaths (but this is not visible).

It is very likely that this wave is not as dangerous as the previous one. The reassuring factor is the great effectiveness of the vaccines against all the new variants of the coronavirus. But perhaps it is not yet time to hoist the flag of “final victory”. The outlook looks more optimistic, but there is also a hint of unease.