Crunch time fast approaching for eurozone's Covid recovery shot

ECB president Christine Lagarde has admitted the EU's vaccination programme has not lived up to expectations.

Europe’s stuttering efforts to overcome the Covid crisis may finally be about to reach a turning point.

After a troubled start to its vaccination drive, progress on ramping up inoculations in the second quarter will determine whether the eurozone can finally shake off the worst economic turmoil in living memory or languish further behind its peers.

Three months of tentative immunisations recently forced more optimistic forecasters from JPMorgan to UBS to cut growth outlooks for 2021. At the same time, the prospect of real progress during the current quarter is making comparatively cautious projections for the region now seem achievable.

That still won’t be easy. Success will require authorities to administer millions of jabs every week while battling resurgent outbreaks that have triggered renewed lockdowns. France is poised to enter a renewed phase of restrictions.

“The base case is that, if vaccinations progress and the weather gets better, things will improve,” said Dirk Schumacher an economist at Natixis in Frankfurt. 

Given the level of pent-up demand, this should ignite solid growth rates. If infection dynamics keep rising and there’s a complete shutdown, of course this is not going to happen.

A second-quarter turnaround would already mean a costly delay inflicted by the EU's flawed procurement of vaccines, patchy delivery and a sluggish rollout. Barely 10% of EU residents have received at least one dose, little more than a third of the US tally.

This is “short of what we had expected,” ECB president Christine Lagarde said.

Economists have reassessed their view of the second quarter too. This week, Germany’s Ifo institute, Italy’s Istat and Switzerland’s KOF halved their prediction for expansion to 1.5% from 3% foreseen in December.

“The further extension of lockdown measures will leave an imprint on activity in the second quarter, although the vaccination campaigns are expected to gain traction in the coming weeks,” ECB chief economist Philip Lane said.

Rising confidence

Building momentum behind Europe’s immunisation push has cemented confidence in an eventual pickup. Bloomberg Economics even raised its growth outlook for the year to 4.4%.

“By the end of May, those who really need a shot should have had one, and the euro-area economy is likely to be reopening,” it said. “We therefore expect activity to rebound swiftly.” That view chimes with that of the ECB, whose central scenario is for expansion of 1.7% in the second quarter, setting the foundations for a recovery.

Bloomberg