Economic recovery in pandemic-hit eurozone is unlikely until 2023

The eurozone economy is set to shrink 7.3 per cent this year as lockdowns to stem the outbreak remain in place, S&P Global Ratings says

Municipal workers in protective gear sanitise a boat in Venice as they prepare to allow some shops to reopen on April 14. S&P Global estimates lockdowns in european countries will last about eight weeks, on average. ReutersShow less

Europe is facing a deeper economic recession than the US and the eurozone economy will take three years to recover from the impact of the coronavirus pandemic, according to ratings agency S&P Global.

The eurozone economy is set to shrink 7.3 per cent while the UK's will slump 6.5 per cent this year. The lockdowns are likely to last longer and recovery in Europe is set to be more gradual than the agency estimated just three weeks ago.

“We now assume eight weeks of lockdowns on average (up from six previously) … additionally, we assume some social-distancing measures will have to stay in place until a viable treatment or vaccine are found, which could be mid-2021," S&P Global said in a research note on Monday.

Restaurants and social activities, the rating agency said, are unlikely to run at full capacity and restrictions on travel are likely to stay in place until a treatment is found.

“Notably for Europe, we now forecast a deeper recession [than that] in the US, the main destination for the region's exports,” the report said.

Lower oil prices will also affect purchasing power in other important export markets, notably Opec member countries and Russia, it said.

The eurozone may only recoup two-thirds of the hit to its economies by the end of next year, with a full recovery likely by 2023, the agency said. The UK, too, will remain weaker by the end of 2021 – after a 6.5 per cent fall in gross domestic product this year. Growth next year is likely to come in at 6 per cent, then taper to 3.2 per cent in 2022.

S&P Global forecast a 2.4 per cent overall decline in global GDP growth in 2020, which is more optimistic than the 3 per cent estimated by the International Monetary Fund in its World Economic Outlook last week. The IMF forecast a 7.5 per cent GDP decline in the eurozone this year and 4.7 per cent growth next year, and a  6.5 per cent decline for the UK this year, with growth of 4 per cent in 2021.

Governments and central banks across the globe have poured an estimated $8 trillion (Dh29.4tn) into the global economy to ensure financial stability and soften the impact of the outbreak. The EU is rolling out its own fiscal and monetary responses to deal with the crisis.

The European Central Bank broadened the type of assets it will buy under a new monetary easing programme, while EU fiscal measures announced so far amount to about 4.8 per cent of the eurozone GDP, S&P Global said.

Swiss bank UBS, however, has warned that sovereign debt in the eurozone could "be significantly higher after the crisis and likely far in excess of levels reached during the 2010-12 eurozone crisis”.

Concerns about individual nations' debt sustainability were likely to be mitigated by support measures offered by the European Central Bank, it said in a report on Sunday.