Vaccination will boost economic growth from the second half of the year

Herd immunity

The coronavirus crisis has been a blow to the global economy. Belgium does not escape to the consequences of lockdowns and other measures with which the authorities want to reduce the spread of the virus. The public deficit will explode and the unemployment rate, which was still historically low last year, will exceed 7%.

It is a big step forward that the coronavirus vaccines have been developped much faster than expected. When a large part of the population will be vaccinated, restrictive measures that are slowing the economy could be lifted.

6 billion doses worldwide have been ordered to manufacturers, and many countries have already ordered enough doses to create a group immunity. However, the production and distribution of vaccines is a major challenge. According to economic forecasts from Euler Hermes (Allianz), “the United States, Germany, Belgium, Scandinavia and France have the highest scores in terms of the capacity to transport and distribute a Covid-19 vaccine on a large scale”. The Belgian authorities are convinced to be able to vaccinate enough citizens by the summer to obtain herd immunity.

Rollercoaster

Until then, the economy will continue to suffer from the restrictive measures. "The double dip in Europe and the marked slowdown in the United States will make the situation worse before improving," say the Euler Hermes economists. They warn of major obstacles to the deployment of immunization campaigns, such as growing scepticism among the population towards vaccines and logistical difficulties in vaccine production and distribution. “Despite these obstacles, we expect that by the middle of the year, vulnerable population groups, which make up around 20-40% of the total population, will be vaccinated. This paves the way for a strong recovery of the economic growth in the second half of the year”, said Euler Hermes.

For the Eurozone, Euler Hermes forecasts an economic growth of +4.3% in 2021 and +4.3% in 2022, after the economic contraction of -7.5% in 2020.

Role of the authorities

Until this economic recovery, the governments will have to do everything to keep the economic engine running. “We expect that governments will enhance their support for businesses in order to limit the long-term damages and to add an additional boost to the recovery”, said Euler Hermes. In Europe, it seems that budget support is growing, although in a more targeted and cost-effective manner than during the first lockdown in March last year. In the United States, recovery spending will increase by an additional USD900 billion in 2021. Meanwhile, central banks will also keep low interest rates until at least the second half of 2023. Many companies will still need to this oxygen before sustainable economic growth can recover.

Read the full report of Euler Hermes for our full economic forecasts for 2021.