The costs of Covid-19 were relatively higher in terms of GDP in the European Union and in relation to health in the United States, highlights a report released by the European Commission.
Before the pandemic, the euro area and the United States faced broadly comparable economic conditions.
Labor markets in both economies had tightened somewhat in the years immediately before the pandemic, with employment rates rising and unemployment falling.
In the euro area, employment recovered from the worst of the global financial crisis and reached historically high levels in 2019.
At the same time, inflationary pressures remained contained and inflation rates were below target.
While the United States suffered the health costs of Covid-19, the euro area experienced a further economic contraction.
Costs of Covid-19
In 2020, real GDP decreased more in the euro area than in the United States (-6.4% and -3.4%, respectively).
In both cases, the GDP contraction during the Covid-19 crisis was much larger than during the global financial crisis.
Unlike the 2008 crisis, the contraction in GDP in 2020 was initially led by a sharp drop in private consumption, rather than investment.
Lower private consumption accounted for around two-thirds of the total Covid-19-related GDP decline in the two regions in 2020. However, gross fixed capital formation (GFCF) contracted more in the euro area (around -7%) than in the United States (-1.5 percent).
In both regions, there was a significant reduction in exports and imports in 20202. However, the very different nature of Covid-19 and the global financial crisis and different policy responses limit direct comparison.
Furthermore, according to the European Commission report, the euro area and the United States began to recover from the pandemic recession more quickly than after the global financial crisis, and the pace of recovery has been faster than expected. initially.
The post-pandemic recovery started earlier in the United States, with GDP exceeding its pre-pandemic levels in the second quarter of 2021, two quarters earlier than expected for the euro area.
Following the global financial crisis, the sovereign debt crisis in the euro area slowed down the recovery so that it took about seven years for the level of GDP to reach the level of 2008.
By contrast, the United States quickly recovered from the 2008 crisis, reaching pre-crisis levels of activity within three years.