Bullish Brussels upgrades EU growth forecasts

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A clutch of reports today highlighted the uneven nature of economic recovery and the permanent scars the pandemic may leave behind.

Thanks to an accelerating vaccination programme, the EU is set for its fastest economic growth since 1976, according to new forecasts from the European Commission. After contracting by 6 per cent last year, Brussels said the bloc would expand by 4.8 per cent this year and 4.5 per cent next year. This means real GDP could hit pre-crisis levels in the final quarter of this year, much earlier than was anticipated just a few months ago.

Economic recovery in the UK by contrast seems to be losing momentum. Britons spent less in shops, bars and restaurants in June as Covid-19 infections began to rise, according to a range of unofficial “high-frequency” indicators. Ministers will be hoping that the much fanfared removal of remaining pandemic restrictions planned for July 19 will give the revival another shot in the arm, but the health secretary has admitted the country will be in “uncharted territory”.

The link between vaccinations and economic progress was underlined by the FT Editorial Board, as it urged G20 finance ministers and central bankers meeting in Venice this week to recognise that no one was safe until everyone was safe. “The failure to commit to a plan to end the pandemic by vaccinating all the world’s adults, such as the one costed at $50bn by the IMF, is unconscionable but also self-defeating,” it argued.

Separately, a report from the OECD highlighted that whatever the speed of economic recovery, some structural changes could be here to stay. The organisation said the pandemic had not only destroyed the jobs of 22m workers in rich countries — with labour markets not recovering until the end of next year — but could also lead to a mismatch in skills between those that are out of work and the jobs available, with a consequent rise in long-term unemployment.

“A widening gap may develop between those who have weathered the crisis through reduced hours and short periods on temporary lay-off and those who have found themselves jobless — increasingly distant from the labour force, exhausting benefit entitlements and risking long-term scars,” the OECD said.

Global economy

French president Emmanuel Macron is considering reviving controversial pension reforms as part of his post-pandemic economic strategy, even as the country’s recovery remains fragile and under threat from new coronavirus infections. According to OECD data from 2018, the average effective age of retirement for French men was 60.8 years, compared with 64.7 for the UK, 64 for Germany, 63.3 for Italy and 62.1 for Spain.

Tom Mitchell in our Trade Secrets newsletter compares Singapore’s successful reopening with that of China, where less effective vaccines mean the removal of restrictions is much slower. Sign up here to get Trade Secrets straight to your inbox each day.

The Australian government has enlisted big business to help with its faltering vaccination programme, which is leaving the country vulnerable to the spread of the Delta strain of coronavirus. Initiatives include plans by Qantas to give bonus frequent-flyer points to vaccinated customers.

Business

South Korea’s Samsung, the world’s largest maker of memory chips, smartphones and electronic displays, said quarterly profits could hit a three-year high, as the global semiconductor shortage drives a surge in demand. Carmaker Jaguar Land Rover meanwhile has halved its sales expectations because of the shortfall. German carmakers are also suffering.

Sectors that rely on physical contact such as shops, restaurants and aviation could find it much more difficult to find insurance in the future, according to an EU regulator. The pandemic had highlighted “new potential sources of correlated defaults across industries”, leading to a major change in how trade credit insurers gauge risk and the prospect of less coverage in these sectors.

A report from the UK’s National Audit Office highlighted “unusual” pressure from the government on the business department to allow Greensill Capital, the now collapsed supply chain finance company, to become an accredited lender of Covid-19 loans. Watch our film on the lobbying scandal involving the company and former prime minister David Cameron.

Markets

Investors are eagerly awaiting the publication later today of the minutes from the US Federal Reserve’s recent policy meeting, seeking clues on when the Fed might begin to pare back its emergency bond-buying programme. Services sector data raised concerns yesterday that US economic growth might be slowing.

Oil prices hit a three-year high yesterday as a disagreement about production targets between Opec members Saudi Arabia and the UAE escalated. Read our explainer on why the cartel is in turmoil. Shell said this morning that high oil prices had helped cut its debt, meaning shareholders could be rewarded when it announces results at the end of this month.

Covid-19 has upended traditional economic theory, writes Lena Komileva, chief economist of G+ Economics. The pandemic has accelerated changes in supply chains, the labour market and public finances as well as driving up inflation. The effects of these forces will long outlast the emergency measures of governments and central banks, she argues.

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Have your say

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Final thought

Wish I were there: During lockdown, we asked where you were dreaming of returning to once travel restrictions were lifted. From the banks of the Ganges to the Northern Alps of Japan, here are some of your responses.