Western Europe 2022 Forecast

The year of 2021 was marked by vaccination campaigns all over Europe and the debate regarding its compulsiveness and efficacy. In several European countries, including Portugal, preventive pandemic measures were adopted such as the requirement to present vaccination or recovery certificates, or a negative test to access some services like food, theaters, or nighttime leisure activities.

Throughout the year the debate has been mainly evolving to whether it is necessary to vaccinate healthy children, for instance some countries like France began to only vaccine children with underlying health issues, but later included all population in a voluntary regime. Several EU countries, like Portugal, Spain, and Italy started generalized vaccination for 5- to 11-year-old children in early December.

Nonetheless, it’s safe to say that the vaccination has allowed for the recovery of these countries, which were strongly affected by their respective generalized quarantines and national lockdowns periods.

Many Western European countries rely on tourism as a main economic activity, and thus the “vaccination passport” and less restrictive travel measures between European countries were one of the proposed and adopted ideas throughout the year of 2021. Especially during the summer these new immunity measures were extremely important and allowed for restrictions to be lifted and acted as an incentive to these countries’ economies.

With the evolution of the pandemic scenario, the European Commission has estimated a GDP growth of 4.3% in the eurozone countries, which are mainly from Western Europe. The deputy president of the European Commission, Valdis Dombrovskis, adds that: “Our measures to cushion the blow of the pandemic and to ramp up vaccinations across the EU have clearly contributed to this success”. She also estimates that inflation will go down 0.2% in 2022, hitting 2.2% and its peak in prices in the last 4 months of the year.

“There are three key threats to this positive picture: a marked increase in COVID cases, most acute in areas where vaccinations are relatively low; rising inflation, driven largely by a spike in energy prices; and supply-chain disruptions that are weighing on numerous sectors” says European Economic Commissioner Paolo Gentiloni.

2021 was also the end of the Merkel era in Germany. After 16 years, the federal government is composed of three political parties, SPD – Social Democratic Party of Germany, Alliance 90/The Greens and FDP – Free Democratic Party. The new elections were in September and this new coalition will have to honor the legacy of the last government, attain the goals of climate recovery, boost economic competitiveness, and preserve social laws. Until the end of the year there’s not been many changes worth noting, but only the new year of 2022 will tell the country’s path.

2021 was the first year after Brexit at the end of 2020 and although the consequences were masked by the pandemic, it was still possible to feel its effects in 2021. Only shopping (from EU countries) became more expensive. Before the consumer paid the VAT local rate where it bought the product, and right now it always pays the British VAT rate of 20%. The application of the tax also changed since it no longer is included in the price, but it is now requested at the moment of payment. Yet, Brexit commercial deals have allowed for the non-application of tariffs to EU products, but don´t include imports from other countries, which increases its price substantially. The country has more freedom regarding its tax regime and internal market distribution which has some positive and negative effects. On one hand certain products’ value like feminine hygiene products are now tax free, whereas before its price would increase 5%. On the other hand, from businesses’ perspective, in various sectors, the added bureaucracy and adjustment to new customs and market scenarios has been challenging. These changes have made product transportation difficult and a rise in the service´s cost, consequently reducing sales.

Even so, it is difficult to isolate COVID and Brexit effects, therefore, only with the end of restrictions and gradual return to market normality would it be possible to evaluate the future of British economic relations.

The real estate market, a constant burden on European citizens has also suffered some changes regarding its functioning mainly due to the pandemic. It’s estimated that in 2022 foreign investment may be noteworthy in the real estate sector mainly in countries like the United Kingdom, Germany, and France. The Central European Bank has not defined throughout 2021 a specific strategy for any changes in its monetary policy or interest rate. However, some countries have already made some changes independently.

Spain has seen its real estate market suffer, especially in commercial properties (like offices and stores). However, its economic recovery and unemployment rate decrease could mean a greater use of these spaces and even a bigger incidence of foreign investment. The change in work dynamics, with the introduction of remote working, also resulted in a shift in demand for office space, with meeting spaces being more valued than office facilities. It is also estimated that Spanish tourism will grow, and the hospitality, restaurant and catering sector will gradually return to 2019 activity.

The French GDP has grown 7% in 2021, its biggest increase in 52 years, meaning its growth is bigger than those in the pre-pandemic period. The unemployment rate decreased drastically and it’s possible to state an upturn in domestic and foreign investment. Still, due to the omicron variant some of the restrictive measures have not yet been lifted, and therefore some changes might still happen to 2021 values. Thus, GDP is still below the 2019 figure, but economic recovery has been positive in comparison with the fall of GDP by 8.5%. In 2022 France will face presidential elections, which in the current political context, may have serious consequences in terms of its relations with Germany and other European powers.

In Portugal, we’ve had some setbacks in 2021, with two more national lockdowns. The first at the beginning of the year due to the biggest and most devasting Covid wave that we’ve suffered through since February 2020. Many state that it was caused by the recklessness of the safety measures enforced during Christmas and New Year. Later, the delta variant also affected our country’s numbers and made a nationwide quarantine necessary with mandatory remote work. By contrast, vaccination rates increased gradually and during summer it was possible to lift some measures regarding non-essential services like nightclubs. The vaccination certificate was also introduced to access most hospitality, food services and leisure activities. Of all the pandemic plans, the most controversial topic of the year was the draft and approval process surrounding 2022’s State Budget, in the last half of the year, which was rejected in the Parliament. It was voted down in the first round by PSD, the Left Bloc, PCP, CDS-People’s Party, PEV, IL and Chega. The only votes for were from PS. It was then, with no compromise, and in the absence of consensus in the left parties that a political crisis emerged that eventually progressed to early elections in January 2022. On the other hand, Portugal’s economy grew 4.8% and the country is now awaiting European funds and a consensus in Parliament regarding their application. It’s also worth noting Portugal’s Presidency of the EU Council in the 2021’s first semester and Portugal´s choice as the best country in the world to travel by the readers of Condé Nast Traveler in the “Reader’s Choice Awards 2021”.

Regarding climate issues, drastic changes are expected in 2022 that will be more intensely felt from the third trimester onwards. Europe, specifically the EU, follows the EGD guidelines (European Green Deal) that means to ensure economic growth in a sustainable and automated way. It’s worth noting that Portugal was the country that cleaned the most beaches in 2021, in a UN initiative.

Forecast: I anticipate Germany and France remain stable, establishing themselves as European powers. Brexit will be felt in 2022 due to the changing European landscape and the end of cooperation of the European Union. In Portugal, I foresee a new coalition (“geringonça”), either between right or left parties, since no party will gain a absolute majority.   

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