Europe, Middle East
Before the coronavirus pandemic, the Eurozone had seen a decade of moderate growth, although briefly slipping into recession in 2012-13 during the sovereign debt crisis. Austerity measures implemented to repair national balance sheets in the wake of the 2008 financial crisis had a large negative effect on aggregate demand in the eurozone and it was not until the global economy picked up the pace from 2015 onwards that the currency union saw a return to economic growth above 2.0%. The European Central Bank has continuously tried to reinflate the economy through its quantitative easing programme and ultra-low interest rates, with the deposit facility falling from -0.1% in 2014 to -0.5% in 2019. While the verdict on the effectiveness of negative interest rates is still out, European banks have been squeezed by additional regulation and having to pay for their deposits with the central bank.
European institutions have reacted decisively to the economic challenges brought about by the coronavirus pandemic. Crucially, the European Commission has agreed on a €750 billion recovery fund to boost the EU budget, help members to recover and kickstart the economy. The rapid and effective disbursement of the funds in addition to national stimulus programmes is expected to be key for the recovery from 2021 onwards. The longer-term challenge for the EU is to position itself credibly as a global economic power alongside the US and China.
The economies of Eastern and Central Europe have been among the fastest-growing on the continent. Benefitting from low labour costs, access to the EU’s internal market as well as their historic ties to Russia, countries such as Hungary, Poland and the Czech Republic have made considerable strides in closing the gap to the richer countries in the west. However, the rise of populist governments in these countries has led to conflicts with European institutions. Future disbursements of EU funds could be jeopardized if conflicts about the rule of law, free press and the protection of minorities further escalate.
The economies of the Middle East and North Africa (MENA) region have historically been closely linked to the production and export of oil. Petroleum prices recovered in the second half of the past decade after they had fallen from over US$100 per barrel in 2014 to below US$40 in the following year. However, this recovery was a bumpy one with frequent setbacks and additional volatility introduced by the rise of the US’ fracking industry which has started to challenge the OPEC’s control over oil prices. With the world economy slowing in 2019, oil prices were already weakening before falling precipitously during the coronavirus pandemic as a lack of storage capacity briefly pushed prices into negative territory.
While oil prices have partially recovered since and traded around US$40 per barrel in late 2020, oil exporters in the region will struggle with low global demand as well as a longer-term global shift towards greener energy production during the economic recovery. Oil importing countries will receive a boost from lower petroleum prices, though this will likely be offset by reductions in trade, tourism and remittances. As in other regions of the world, the MENA region will see the sharpest contraction in GDP in over 50 years amid the coronavirus pandemic.
For countries in conflict, the longer-term outlook depends heavily on the improvements in their security situation. This is especially the case for Libya, Iraq, Syria, Yemen, as well for Lebanon, which was struck by a devastating port explosion in Beirut in August 2020.
Beyond the recovery from the economic damage brought about by the coronavirus pandemic, countries in the region will need to develop and implement strategies to diversify their economies. Revenues from oil exports are expected to fall in the medium term as countries start to take their commitments to reduce carbon emission more seriously.
The population of Sub-Saharan Africa has eclipsed 1 billion in the second half of the past decade and is expected to at least double in the coming 30 years. The region exhibits the highest population growth rate globally and is projected to continue to do so, with far-reaching consequences for its economy in the medium and longer-term. The region is home to over 46 nations with growth prospects varying considerably across countries. Commodity exporters have the largest economic weight in the region and are home to about two-thirds of the region’s population. As such, the weakness of the global economy and falling commodity prices in 2019 presented a challenging outlook even before the coronavirus pandemic. Growth in Nigeria and South Africa – the region’s largest economies – has been disappointing in recent years with the growth outlook constrained by insufficient infrastructure investment, high costs of doing business and low public enterprise efficiency. In the near term, the region is facing a difficult recovery from the impact of coronavirus, which is made harder due to the limited fiscal space by governments, large informal sectors and fragile public health systems.