The coronavirus already contaminates growth forecasts for a Europe whose economy does not pick up, driven by the fragility of its demand, Brexit and commercial tensions. Bank of America yesterday cut its projections for the euro zone almost in half: from the initial 1% to 0.6% in 2020. The entity warns that there will be a “permanent loss of activity” by Covid-19. And it predicts a near zero advance in the first half and a recovery during the second half of the year.
Of course: as long as there is no simultaneous contagion throughout the eurozone and the crisis is resolved towards the end of spring. That is, the damage to tourism would have already been diluted by summer. Otherwise, given the weight of vacation travel, the impact would be much greater when the tourism sector represents 10% of GDP. Especially in Spain.
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The bank believes that the euro zone faces lower foreign demand, disruptions in value chains and lower domestic demand in places affected by the virus. The most disadvantaged economy will be the Italian one, which will enter into recession when 0.2% is contracted against the 0.3% growth that was estimated before. Germany stays on the edge: it goes from 0.5% to 0.1%. France, from 1.2% to 0.8%. And Spain only suffers, for the moment, a correction of two tenths: from 1.6% to 1.4%.
This slowdown will cause the relaxation of fiscal policy "on a small scale" in the euro zone, the entity said. In his opinion, countries will make use of the clauses that allow them to skip community rules when a catastrophe occurs. Even so, “neither fiscal nor monetary policy can avoid the weakness of the first half of the year,” says the report. Spain adds a risk: that low growth now makes evident the lack of adjustment in public accounts.