From Vaccines to V-Shaped Recovery in Europe

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.

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.

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