The euro area economy is for once set for a sprightlier recovery from crisis than the U.S., thanks to starkly different responses to the coronavirus. America’s failure to get a grip on the pandemic is putting the brakes on its rebound compared with Europe, where many former virus hot spots managed to resume economic activity without causing a similar surge in infections.
Crucial for a sustainable recovery is confidence that the virus is no longer out of control, and Europe’s relative success may help encourage shoppers to spend and businesses to invest, further propelling demand and growth. The region has also done a better job of protecting jobs and incomes, at least for now, with furlough programs keeping millions of workers on payrolls.
According to JPMorgan Chase & Co., Europe will do better because it has “broken the chain” that links mobility and the virus. Goldman Sachs Group Inc. has cited effective virus control as one reason it expects a “steeper and smoother rebound in the euro area than elsewhere.”
“It’s very clear that the euro area turned down more sharply but we also expect it to bounce back more sharply,” said Jari Stehn, chief European economist at Goldman Sachs. “It’s pretty rare that the euro area would outgrow the U.S. over a horizon of one to two years.”
Since 1992, the U.S. has outperformed the euro area in all but eight years, according to IMF data. Although the euro area managed to grow when the financial crisis hit in 2008 and the U.S. shrank, in 2009 the U.S. contraction of 2.5% was far shallower than the euro area’s 4.5%.
Aggressive lockdowns mean the euro area is set for a sharper second-quarter contraction than the U.S., something that will be seen in GDP figures due this week.