The eurozone’s latest economic growth figures are a little better than expected. This group of 19 EU nations grew 2.2% in the second quarter of 2021 compared to the first quarter, partly thanks to decent performances from Spain and Italy.
But while the US and Chinese economies are both now bigger than their 2019 peaks, the eurozone is 3% off that achievement. And when you look more broadly at the state of the eurozone, this turns out to be only the tip of the iceberg.
COVID-19 still overshadows everything around the world, but countries are likely to recover at different speeds once we get back to some sort of normality. This will depend on the structure of their economies, the effectiveness of their recovery policies, and how they deal with high sovereign debts and a foreseeable mix of weakish growth and inflation. But for several reasons, the eurozone particularly worries me.
Ghosts of the past
The first is the eurozone’s bleak performance since the global financial crisis of 2007-09. It took six years to regain its 2008 GDP level, and some members did even worse: Spain and Portugal took almost a decade, and Italy and Greece have yet to get there.
When COVID broke out, the eurozone growth rate remained well below its long-term trajectory. It was behind the US and UK, both of whom were hit harder by the global financial crisis, and even worse compared to the leading emerging economies. Neither was this a one-off. Looking at the past five recessions, the eurozone nations have been successively slower to recover from each one.ee