Moody’s cuts euro zone forecast on ‘pandemic-related weakness’

Ratings agency Moody’s has cut its growth projections for the euro zone due “to the pandemic-related weakness” in the first quarter, while warning that real gross domestic product (GDP) would not return to pre-Covid levels before 2022.

In its latest Global Macro Outlook report, the firm said it expected GDP growth in the euro zone to be around 3.7 per cent this year, marginally down on its previous projection, and 3.9 per cent in 2022, following an expected a 7.1 per cent contraction in 2020.

But it warned that recovery would remain uneven and incomplete in 2021 as activity in contact-intensive sectors such as travel and tourism remains limited.

“The pandemic’s toll on global economic activity has been staggering, even as the economy has also shown a remarkable degree of resilience,” it said.

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“But the effects on individual businesses, sectors and regions continue to be uneven, and the Covid-19 crisis will endure as a challenge to the world’s economies well beyond our two-year forecast horizon,” it said.

As countries across the globe battled a third wave of the pandemic while simultaneously rolling out vaccine programmes, Moody’s warned that the experience of last year showed that all countries are at risk from new coronavirus outbreaks after social interactions resume.

"Despite their superior healthcare facilities and financial capacities, advanced economies such as the US, Canada, the UK and the euro area have struggled as much as some emerging market countries to keep infections from rising repeatedly," it said.

It warned the emergence of new variants of the virus in England, Brazil and South Africa underscored the risk of mutations, particularly in countries that are unable to tame the spread of the virus.

Moody’s said vaccines will be key in suppressing the virus’s spread and reducing fatalities.

“While new vaccines are likely to become available and production of existing vaccines will scale up, lack of co-operation among countries means that some nations without an assured supply of effective vaccines or production capacity will struggle to overcome the pandemic,” it said.