The Bank of Korea: "Fiscal Support and Vaccine Supply Widened the Economic Recovery Gap Between the US and Europe"

[Asia Economy Reporter Kim Eunbyeol] An analysis has emerged that the level of fiscal support and vaccination rates after COVID-19 are widening the gap in economic recovery between the United States and the Euro area.

On the 18th, the Bank of Korea stated in 'Overseas Economic Focus - The Causes and Future Prospects of the Economic Recovery Gap between the Euro Area and the United States after the Pandemic' that "After the pandemic, both the US and Europe recorded significant negative growth in the first half of last year, but while the US maintained a steady recovery trend, the Euro area continued to struggle." It added, "Although the Euro area actively responded to the COVID-19 crisis through European Union (EU)-level bailouts and member state-specific fiscal support, the scale of fiscal stimulus was relatively insufficient compared to the US, and the Euro area's vaccination rate has remained lower than that of the US due to vaccine supply delays, which is also a reason."

The Bank of Korea also cited the Euro area's externally dependent industrial structure and relatively strict trade and mobility restrictions as additional reasons for the economic recovery gap between the US and Europe.

When setting the US gross domestic product (GDP) level in the fourth quarter of 2019, before the pandemic, as 100, it recovered to 99.1% in the first quarter of this year, nearly reaching the pre-crisis level. In contrast, the Euro area recorded 94.9%, still showing signs of not having recovered from the impact of COVID-19.

It continued, "The pandemic not only widened the growth rate gap between the Euro area and the US but also temporarily expanded the potential GDP gap between the two regional economies," adding, "As the Euro area's economic recovery accelerates in the future, the potential GDP gap with the US is expected to gradually narrow."

The Bank of Korea stated, "In the past, whenever crises such as the global financial crisis or fiscal crises occurred, the Euro area experienced significant declines in both real growth rates and potential growth rates, widening the gap with the US." In the case of the US, it is expected that the input of capital and labor will decrease for the time being, reducing potential GDP, but the extent of the decrease is not expected to be large.

Regarding the future Euro area economy, it predicted, "With accelerated vaccination and expanded fiscal policies, growth is expected to increase from the second half of this year, recovering to pre-pandemic GDP levels by the first quarter of next year, and next year's growth rate is expected to be higher than that of the US." It added, "Furthermore, the expansion of economic growth in the Euro area will have a direct and indirect positive impact on South Korea's exports."

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