EU Set for Rapid Q3 Recovery According to ECB President

European Central Bank President Christine Lagarde gave an interview with CNBC’s Sara Eisen recently where she discussed the current state of the European economy. 

According to Lagarde, European member states should start to see an accelerated rate of economic recovery in the latter half of 2021. She acknowledged the fact that continued lockdowns have put a dent in current recovery efforts but remains hopeful for the future. 

Lagarde described the situation as “light at the end of the tunnel,” believing that Q3 onwards should see enough rapid development to make up for the slow pace at which the European economy has been recovering in 2021. 

According to the latest International Monetary Fund projections, the EU can expect a running recovery rate of 4.4%. This puts it in line with the average recovery of the world’s advanced recoveries after it has trailed behind those figures since March of 2020. 

That being said, the EU is still going to be well behind the estimated 6.4% recovery rate of the US. This follows the contraction of 6.6% that the EU faced in 2020 compared to the -3.5% contraction of the US.

Vaccine Rollouts See EU Economy Struggling

There are a vast number of reasons that have led to the slow recovery of the Eurozone, one of which is the ongoing struggle to implement vaccine rollout plans. 

The major difference between the US and EU in this regard is Congress’s more substantial fiscal approach to the situation after it released over $5tn in stimulus and Biden’s new infrastructure plan, which has yet to be implemented. 

The US, despite struggling more than the EU in the middle of the 2020 pandemic, has been dramatically more successful with its vaccination programs. This has allowed the American economy not only to reopen quicker but reopen to increased spending thanks to the stimulus package that American households received in 2021. 

According to recent data, only 14% of people living in the EU have received their first vaccination dose, whereas the rate of US vaccination is 33.5%. While Lagarde stated that there is “strong” determination to get 70% of EU citizens vaccinated by the end of Q2, this dramatic difference is the leading factor in the economic differences that both areas are currently experiencing. 

Despite that, European Central Bank seems to be taking a page out of the Federal Reserve’s playbook when it comes to stimulating growth in the form of minuscule interest rates and an increased number of asset purchases. 

ECB Acknowledges US Differences 

Despite the constant comparison between the two economies, Lagarde has acknowledged that the two situations are wildly different, stating, “we are in a completely different situation,” during her CNBC interview. 

She went on to say, “the US is probably going to hit its inflation targets soon. We are very far away from that.”

This acknowledgment puts to rest any questions of unrealistic optimism coming from the ECB and reinforces that there is a harsh and realistic approach being taken towards the current EU economic situation. 

Lagarde also discussed the ECB’s approach to policy is all about having “complete flexibility.” She is quoted as saying, “flexibility across time, asset classes, across countries, and we decided when it was needed to expand it, and to expand it, we did it twice.”

It appears as though the ECB is planning an aggressive response to the lag of the EU’s economy, something which should benefit both Eurozone members as well as the wider global economic world.