Third Wave Of Coronavirus Jeopardises European Growth Prospects

A lower vaccination rate than initially estimated would have negative implications for growth expectations

The unstoppable spread of the pandemic is currently hitting Portugal and Spain with particular severity. And it has been worsened with possible delays in the production of vaccines, both by Pfizer and Astrazeneca, thus jeopardizing the pace of deliveries and the vaccination schedule in Europe. At the same time, the short term is being complicated on the continent by the increase in the number and depth of restrictions. These are weakening the prospects for recovery in the first part of the year.

In Spain, the evolution of the coronavirus pandemic has once again forced the autonomous communities to increase restrictions to control the spread of the virus. The incidence accumulated is over 800 cases per 100,000 inhabitants and 2.5 million infections. Specifically, on Monday, the measures announced by the Community of Madrid, the region most reluctant to implement any type of restriction on mobility, came into force. In the end, the regional government decided to change the curfew to 10 PM and to close restaurants and non-essential establishments at 9 PM, while banning meetings in homes of non-cohabitants. For its part, the Basque Country has confined all its municipalities and reduced social gatherings to a maximum of four people, two less than previously allowed. The Valencian Community has also limited meetings to just cohabitants in a private space and to two people who can be from two different nuclear families in a public space. In Europe, the situation in France is also worrying. It will probably need to move into to a third lockdown, perhaps as early as the February school vacations. This is due to the circulation of new strains of the virus, the government’s chief medical advisor on COVID-19 policy said yesterday.

On the other hand, the focus remains on the pace of vaccination. In the case of Europe there is great pressure from governments on pharmaceutical companies to comply with the scheduled delivery dates of vaccines. In this regard, in addition to the lower deliveries by Pfizer in the short term to meet the higher future production (from 1,300 mln doses to 2,000 mln doses in 2021), there is also the lower delivery by AstraZeneca to the European Union. According to some media this could be 60% lower than in Q1’21.

Italy will take legal action and increase pressure in Brussels against Pfizer Inc and AstraZeneca over delays in COVID-19 vaccine deliveries with a view to securing agreed supplies, Foreign Minister Luigi Di Maio said Sunday. Meawhile in Germany, British drugmaker AstraZeneca is expected to deliver 3 million doses of its COVID-19 vaccine in February despite the latest production problems, Health Minister Jens Spahn told the Bild am Sonntag newspaper.

A lower vaccination rate than initially estimated would have negative implications for growth expectations. The World Bank has already revised down its growth forecast for 2021 and the IMF may do so tomorrow. The extension of the restrictive measures is likely to lead to a contraction in Q1’21 GDP and could even jeopardise the summer season.

In the Eurozone, the outlook for recovery this year is also weakening, according to the European Central Bank’s survey of experts, with an expectation of 4.4% compared to 5.3% in the previous survey. If this figure is met, the region would be a long way from recovering pre-pandemic activity data after a fall in GDP in 2020 of around 8%. Weak demand is key to explaining the greater pessimism. However, more problems have also been detected on the supply side, with disruptions in supply chains resulting from longer delivery times to suppliers.