BRUSSELS (Reuters) – Europe’s economy is likely to rally in the second quarter as an acceleration in COVID-19 vaccine roll-out allows governments to gradually lift lockdown restrictions, the European Commission’s vice president for the economy Valdis Dombrovskis said Monday.
“That is indeed our expectation, that with proper calibration of restrictive measures and the rolling out of mass vaccination we will be able to gradually return to economic growth. Indeed we expect already a better economic outlook already in the second quarter of the year,” he said.
The euro zone economy contracted 0.7% quarter-on-quarter in the last three months of 2020 and economists expect it will shrink again in the first quarter of this year.
The International Monetary Fund last month forecast the U.S. and Japanese economies would return to pre-pandemic levels by the end of this year, but that the economy of the 19 countries sharing the euro would not catch up until next year.
Dombrovskis, who oversees the economic portfolio and trade, told Reuters Europe was slower to recover because public health authorities took more time in the EU than the United States or Britain to approve vaccines for public use.
The thorough EU checks were needed partly to overcome scepticism of often strong anti-vaccine movements in some EU countries, he said. But the delay meant the economy-crippling lockdowns were in place for longer.
“We need to be sure that the vaccines are actually safe for public health reasons, but also for public perception reasons, because it’s important to ensure that there is a widespread acceptance of vaccination and people are actually willing to vaccinate,” Dombrovskis said in an interview.
He stressed that vaccine roll-out was now gathering speed with three different shots already EU-approved and more on its way. He said in February the EU would get 33 million doses, 55 million in March and 300 million in the second quarter.
“The speed of vaccination is going to increase in the coming days and weeks very substantially,” he said.
Still the economy of the 27-nation bloc would probably not recover to levels from before the pandemic until next year.
“We expect the European economy to return to pre-crisis levels in 2022,” he said before the Commission releases its latest economic forecasts on Feb. 11.
The European recovery will also get a boost from the nascent implementation of the EU’s scheme to jointly borrow and spend 750 billion euros to make the bloc’s economy more green and ready for the digital age.
The European Parliament is set to approve on Tuesday the key part of that plan — the 672.5 billion euros to be distributed among EU governments in loans and grants to modernise their economies and make them more resilient to future shocks.
The parliamentary approval will allow EU countries to start submitting later this month until the end of April formal plans on how to spend their share of that cash on projects they have been discussing with the EU executive since last year.
Most of the 18 draft national plans and the 6 partial draft plans the Commission has seen so far made an effort to meet the requirement that 37% of the money must be spent on making the economy greener and 20% on becoming more digital.
Dombrovskis said the plans so far had more detail on how to spend EU money than on how economies should be reformed, which was an equally important part of the scheme.
Many also lacked the necessary detail on targets and milestones, without the completion of which the EU executive would not be able to disburse the money.
The EU’s joint borrowing scheme is only a small part of the trillions spent by EU’s national governments to support their economies and Dombrovskis said the EU would not try to withdraw that fiscal support too soon.
“It’s clear that it’s important not to do it too early so as not to jeopardize the recovery, but it’s also important not to do it too late, so as not to jeopardize fiscal sustainability. So it will be a balancing act,” he said.
EU finance ministers will discuss when to start limiting fiscal support in the second quarter, but the fiscal stimulus is already decided to remain in place until the end of 2021.
Reporting by Jan Strupczewski; Editing by Toby Chopra