Eurozone in Double Dip... ECB President "Economic Downside Risks Increasing"

Eurozone GDP Growth Rate Revised Down by 1.1 Percentage Points

Christine Lagarde, President of the European Central Bank (ECB) (Source: AFP)

[Asia Economy Reporter Yujin Cho] The Eurozone economy (comprising 19 countries using the euro), which suffered the most severe economic impact from COVID-19, is now facing additional downside risks due to delays in vaccine rollout.

As the resurgence of COVID-19 intensified at the end of last year, the Eurozone economy entered a double-dip phase, and with extended lockdown measures and vaccine rollout delays, there are growing concerns that an early recovery is unlikely.

On the 8th (local time), Christine Lagarde, President of the European Central Bank (ECB), warned during a meeting with members of the European Parliament that "delays in vaccine rollout and uncertainties surrounding virus variants pose serious downside risks to the Eurozone."

This contrasts with the tone of the December monetary policy meeting last year, where she stated that "the severity of downside risks has lessened due to vaccine development and distribution," and that "the Eurozone economy will return to normal functioning." Recently, the ECB revised down its GDP growth forecast for the Eurozone this year by 1.1 percentage points from 3.9%.

She noted that the intensity of the recession will depend on vaccine rollout results, timing of easing mobility restrictions, and policy response capacity. She added, "With the rapid spread of virus variants and extended lockdown measures, the Eurozone economy is expected to remain significantly contracted," urging that "it is important for monetary and fiscal policies to continue working together."

At last month’s monetary policy meeting, the ECB kept the benchmark interest rate at the current level (0%) and decided to expand the Pandemic Emergency Purchase Programme (PEPP) bond-buying scale by 500 billion euros to 1.85 trillion euros. This response prioritizes asset purchase expansion and fiscal policy coordination over interest rate changes, reflecting the expectation of a slow economic recovery.

Among major countries worldwide, the Eurozone, most exposed to the COVID-19 shock, saw its GDP growth rate in the fourth quarter of last year contract by 0.7% quarter-on-quarter, entering a double-dip phase. The renewed lockdowns and resulting slowdown in tourism services pushed the Eurozone economy, which had rebounded in the third quarter, back into recession.

Germany, leading the Eurozone economy, narrowly avoided a double-dip with 0.1% growth, but France and Italy, where tourism services constitute a large share of the economy, recorded declines of -1.3% and -2.0% respectively, increasing the overall contraction of the Eurozone. Germany is expected to return to pre-COVID-19 economic levels only next year.

The Wall Street Journal (WSJ) analyzed that the Eurozone, trapped in a double-dip phase, faces increased uncertainty over early economic recovery, with vaccine rollout outcomes becoming a key variable for economic rebound. The average vaccination rate among the four major Eurozone countries (Germany, France, Italy, Spain) is in the 3% range, slower than the United States (10%) and the United Kingdom (17%).

This content was produced with the assistance of AI translation services.