The slow deployment of the vaccine is the biggest economic risk to the eurozone

Written by Richa Rebelo

BENGALORO (Reuters) – The eurozone economy will rebound this quarter at a much weaker pace than expected a month ago, according to a Reuters poll of economists citing a slowdown in vaccine deployment as increased risks for the next three months. .

Britain and the United States have successfully vaccinated many of their own populations, but deployment of the vaccine in the troubled Eurozone has become more complicated recently as infection rates skyrocket.

A Reuters poll from April 12-15 showed the bloc will emerge from a double-dip recession and grow 1.5% this quarter, a sharp drop from the 2.1% forecast in March and the lowest consensus since a survey in October.

More than 90% of economists, or 38 of 42, who answered an additional question, said the biggest risk to that already modest outlook would be a slowdown in vaccination.

Among economists who said slowing vaccination was the biggest risk, 85% cut or kept their second-quarter growth forecast unchanged.

“In the first quarter, things have become difficult for Europe and this will have a negative impact on the first half of the year,” said Evan Mamalit, chief economist for the euro area at Société Générale.

“If the deployment of vaccines is not speeded up as we hope, this may mean that the lifting of restrictions will be later and the return to near normalcy will have to be delayed further.”

The cluster is expected to expand 2.3% in the third quarter and 1.3% in the fourth quarter, virtually unchanged from March. But the range of expectations for quarterly growth showed lower gains.

On an annual basis, the Eurozone economy is expected to grow on average 4.1% in 2021, down from 4.3% last month and the lowest forecast since a survey conducted in April of last year.

It was also lower than the International Monetary Fund’s forecast of 4.4%.

For 2022, 4.1% growth is expected, down from 4.2%.

The three largest national economies in the bloc are expected to grow at a much slower pace in 2021 compared to the January projections.

The consensus for Germany was 3.2%, from 3.7% previously, and the forecasts for France and Italy decreased to 5.4% and 4.1%, respectively, from 5.9% and 5.1%.

“Our Eurozone scenario, based on a downward review in the first half of the year due to epidemic damage, followed by a recovery in the summer, assumes more modest growth for 2021 as well as 2022,” Lewis said. Harreau, Eurozone Economist at CA-CIB.

“The growth differential between the eurozone and other large advanced economies is widening, and fragmentation continues within the region. France and Germany should return to pre-crisis GDP by mid-2022; Italy and Spain will likely not reach it. By the end of 2022.”

When asked about the risks their inflation forecasts might be exposed to over the next year, more than 80% of economists, or 30 out of 37, said they were more inclined to the upside.

The consensus showed inflation increased to an average of 2.1% in the fourth quarter of 2021, but slowed sharply next year to 1.2%, 1.3%, 1.3% and 1.3% in each quarter respectively.

When asked about when the European Central Bank might start scaling back its emergency purchasing program, about 60% of economists, or 21 out of 37, said in the second quarter of 2022 or later.

While the head of the Dutch central bank, Klas Knott, said the corporation would start withdrawing its contingency bond purchases in the third quarter and finish them in March 2022, according to the plan, only a handful of economists said the start would begin. It will be sometime in the second half of 2021.

“The Eurozone economy will not yet fully recover from the pandemic until the end of 2022. The European Central Bank will strive to reassure investors that the bank has sufficient strength and resilience,” said Andrew Kenningham, chief economist for Europe at Capital Economics.

“The best way to provide peace of mind is to extend the term of the Emergency Purchase Program itself.”

(Information from Richa Rebello, survey by Indradip Ghosh and Vivek Mishra; edited by Rahul; translated by Michael Sussen in Gdansk Karunakar and Kathryn Evans)