Consulting Report Series <COVID-19: The Vaccinated World 2021 Risks and Opportunities in Europe>

Anna-Carina Hamker & Jeanine Schriemer

February 2, 2021


Introduction

The first wave of COVID-19 started in Europe at the beginning of March, with Italy being hit hardest first. The pandemic spread quickly around the continent, especially as skiers returned home from Austria. Lockdowns were imposed all over the continent with the notable exception of Sweden. European governments reacted with a variety of relief measures to soften the economic effects of the pandemic. Some countries, such as Germany, are well-equipped to cushion the economic impact of the pandemic due to austerity measures and record-high tax revenues collected in the past years. Others, such as Italy, are faced with severe consequences due to their high level of public debt. In terms of economic development, Europe hoped for a quick, U-shaped recovery during the summer, as cases dropped and containment measures were loosened. However, the second wave arrived in October, hitting several countries harder than the first one and leading to renewed lockdowns. As a result, a U-shaped economic recovery now seems unattainable.


To simplify comparison, the focus of this paper is on high-income countries. This report will compare France, Germany, Italy, the Netherlands, and Switzerland. The latter is included in this paper since it is a non-European Union (EU) country meaning that it is neither included in the recovery fund nor in the EU Commission’s vaccine procurement process. The success of its vaccination and recovery strategy will, therefore, provide a unique reference for the rest of Europe.


EU Measures and Policies

At the beginning of the COVID-19 crisis in Europe, EU member states criticized each other for their egoistic behaviour, as they chose to act unilaterally with border closures and export bans. The efforts undertaken by the European Commission, however, aim to signal cooperation and solidarity.


Vaccination Measures

Regarding the vaccine procurement process, the European Commission and the member states have agreed on joint action at the EU level to prevent competition among the countries. Also, it has been decided that the European Medicines Agency (EMA), instead of the member states’ authorities, is responsible for the independent approval of the vaccine. The BioNTech-Pfizer vaccine was approved on December 21st, 2020. In addition, the Moderna vaccine was authorized on January 6th, 2021. Other vaccines, in particular the AstraZeneca one, are expected to be approved this month. The European Commission enters into Advanced Purchase Agreements with individual vaccine producers on behalf of member states. Until today, six contracts that allow the European Commission to purchase a vaccine have been concluded. These will potentially give member states access to the following numbers and types of vaccines:

The number of vaccine doses secured by the European Commission enables the member states to vaccinate their populations 1.99 times. The EU is, thus, working on a mechanism to share excess vaccines with poorer nations. On January 8th 2021, the European Commission bought 300 million additional doses of the BioNTech-Pfizer vaccine, thereby increasing the amount of times the member states are able to vaccinate their populations. The additional doses will be distributed starting in the second quarter of 2021. The distribution of the vaccine to member states will occur according to the member states’ population sizes. Despite the European procurement process, member states can also enter separate contracts with the individual vaccine providers, as was shown by Germany. The European Commission planned that member states could start the vaccination process with the BioNTech-Pfizer vaccine on 27 December, which was the case in several countries.


The member states’ vaccination progress is currently being halted by unexpected delivery delays of the BioNTech-Pfizer vaccine. The company announced mid-January that it would have to reduce its deliveries in the following three to four weeks. The underlying reason is construction work at its Belgian plant, which produces the vaccine for all countries except the USA. Despite these developments, Pfizer confirmed the delivery of all vaccines that were projected for the first quarter of 2021. Likewise, AstraZeneca, whose vaccine has been approved by the EMA on January 29, 2021, already announced that first quarter deliveries to the EU will be lower than expected. In response to these delays, France suggested doubling the time span between the first and the second shot. European Council chief Charles Michel announced on January 25 that the bloc is considering taking legal action against pharmaceutical companies that have unexpectedly delayed the delivery of the vaccine. According to him, the EU is prepared to enforce the contracts signed by pharmaceutical companies. The EU aims to inoculate 70% of its population by September of this year. However, due to the slow vaccine rollout in the member states, this goal currently seems unlikely to be achieved. At the current pace, only 15% of the EU population will be vaccinated by September.


Economic Policies

In March 2020, the European Central Bank announced the Pandemic Emergency Purchase Programme (PEPP), worth €750 billion. The idea of this program is that governments will issue bonds in order to finance their rising spending and that these bonds will eventually be bought by the ECB. In June 2020, the ECB increased this programme by €600 billion to €1350 billion. Moreover, in April 2020, the European Commission announced three immediate safety nets, worth €540 billion, in order to support jobs and workers, businesses, and member states across the EU.


In the context of signalling EU solidarity, the arrival of the Next Generation EU, commonly referred to as the EU Recovery Fund, is noteworthy. This €750 billion fund, which is attached to the EU’s seven-year budget, aims to allocate both grants and loans to the member states. Grants account for €312.5 billion, and loans for €360 billion. The remaining €77.5 billion will be used to support the EU budgetary programmes. As far as the grants are concerned, the allocation is key. Seventy percent will be allocated in 2021-2022. Here, grants are divided between member states based on unemployment rates (2015-2019), inverse GDP per capita, and the population share. The remaining thirty percent will be allocated in 2023, taking into account the drop in real GDP in 2020, the overall drop in real GDP in 2020-2021, inverse GDP per capita, and the population share. In order to unlock the grants and loans, the member states must submit national recovery plans before 30 April 2021.


These plans must be in line with EU priorities, reflect country-specific challenges, support the green transition (at least 37% of funds must contribute to climate action and environmental sustainability), and foster the digital transformation (at least 20% of resources must contribute to the EU's digital transition). The reforms have to be carried out by 2026. Additionally, after a debate between the frugal four (Austria, Denmark, the Netherlands, and Sweden) and member states of southern Europe - and most notably between the Netherlands and Italy - a governance mechanism has also been implemented. This mechanism ensures that individual member states can raise objections if they believe another member state is failing to adhere to their national recovery plans. These objections can trigger a temporary block of financial transfers and a review process.


Germany

Several other European countries admired Germany for its effective handling of the pandemic during the first COVID-wave, mainly due to an efficient testing strategy and high hospital capacities. However, Germany has been less successful at managing the second wave which seems to be due to the citizens’ increasing laxity in respecting social distancing rules and the government's lack of preparation for a second wave.


Containment Measures


Closures of restaurants

  • 1st wave: 19 March – 11 May

  • 2nd wave: since 2 November


Closures of retail

  • 1st wave: 19 March – beginning of

  • 2nd wave: since 16 December


Closures of non-essential services (e. g. hairdressers)

  • 1st wave: 19 March – 4 May

  • 2nd wave: since 16 December


Closures of leisure facilities

  • 1st wave:19 March – June (depending on region)

  • 2nd wave: since 2 November


Closures of schools and kindergartens

  • 1st wave: 19 March – 14 May

  • 2nd wave: since 16 December


Closures of non-essential factories x


All-day curfew x


Economic Relief Measures

The government has launched the largest assistance package in the country’s history. The size of the economic relief measures in the budget is €353.3 billion. Guarantees for loans will be issued for the amount of €819.7 billion. The steps taken to support companies and freelancers include immediate assistance for small businesses, tax deferrals and reimbursements, relief of social security contributions, compensation for sales shortfalls and fixed costs and others. Furthermore, short-time work has been facilitated to reduce additional unemployment. Short-time work (Kurzarbeit in German) is a social insurance program whereby employers reduce their employees’ working hours instead of laying them off. The government replaces at least 60% of the income for the hours not worked, depending on whether the affected workers have children.


Economic Stimulus Package

The economic stimulus package adopted in June provides for forward-looking investments worth €50 billion. These focus on digitalization, environmental protection and healthcare. Investments in environmental protection are the priority, as they will receive more than half of the funds. These investments are followed by digitalization, with 30% of the money, and then healthcare. On top of that, Germany shall receive €22.7 billion from the EU Recovery and Resilience Facility, of which €15.2 billion will be allocated over 2021-2022.


Sector/ Industry Assessment

The crucial automotive industry, which made up 4.7% of gross value added in 2016, was hit hard by COVID-19, due in particular to supply chain disruptions and a slump in demand. In Germany, the construction and mechanical engineering sectors are also significant. These sectors are less affected by the pandemic than the automotive industry but are nevertheless considerably impacted.


Several sectors are likely to benefit from the recovery due to the investments envisaged by the economic stimulus package. In light of investments in digitalization, telecommunications providers are expected to seize business opportunities because of the government's plans to expand 5G and the fibre-optic broadband network. Innovative companies working in artificial intelligence can also take opportunities as the government ramps up its investments. Since schools, hospitals and public administration shall benefit from digitalization, providers of IT soft- and hardware, as well as cybersecurity experts, are expected to gain from the crisis. Considering the government’s planned investments in environmental protection, it is forecasted that producers of climate-friendly technologies, notably in the mobility sector, will be winners of the crisis. In light of the announcement of the national hydrogen strategy, innovative companies working on hydrogen technologies should also benefit soon. Given the envisaged modernization of hospitals, the construction sector, as well as medical technology and equipment producers, can reap business opportunities. Moreover, pharmaceutical companies can benefit as the government seeks to promote the production of essential medications in Germany.


Switzerland

Because Switzerland is not part of the European Union, it does not benefit from its vaccine procurement system. Instead, Switzerland has so far signed contracts with three vaccine providers: BioNTech-Pfizer (3 million doses), AstraZeneca (5.3 million doses) and Moderna (7.5 million doses). Swissmedic, the regulatory authority, has so far approved the BioNTech-Pfizer and the Moderna vaccines.


Containment Measures


Closures of restaurants

  • 1st wave: 16 March – 11 May

  • 2nd wave: since 22 December (earlier in some regions)


Closures of retail

  • 1st wave: 16 March – 27 April

  • 2nd wave: since 18 January 2021


Closures of non-essential services (e. g. hairdressers)

  • 1st wave: 16 March – 27 April


Closures of leisure facilities

  • 1st wave: 16 March – 8 June

  • 2nd wave: since 22 December (partly; several ski lifts remain open)


Closures of schools and kindergartens

  • 1st wave: 13 March – 11 May


Closures of non-essential factories x


All-day curfew x


Economic Relief Measures

The federal government has decided to spend more than 70 billion Swiss francs (€64.5 billion) to cushion the economic effects of the COVID-19 pandemic. Among the measures adopted, the government provided financial support for particularly hard-hit sectors, such as the cultural and professional sports sector. Moreover, companies whose 2020 sales fall below 60% of their average sales in past years are eligible for governmental financial support. Also, tax deferrals have been made possible, and loan guarantees have been issued. Besides, short time work was facilitated for 18 months. In Switzerland the government pays 80% of the income for the hours not worked. Short-time work refers to a social insurance program whereby employers reduce their employees’ working hours without laying them off.


Economic Stimulus Package

So far, Switzerland has not announced an economic stimulus package. While some stakeholders, such as the Social Democratic Party have called for stimulus measures, a leading Swiss Economic think-tank warns that it would make little sense to stimulate economic demands overall because numerous indicators do not suggest a prolonged recession.


Sector/ Industry Assessment

The Swiss economy is heavily dependent on exports. Its foreign trade ratio is 96%. Export-oriented sectors that suffered from the pandemic are the engineering, electrical, metal and textile industries. Moreover, the situation in China has significantly lowered demand for Swiss luxury goods - the world-famous watchmaking industry, which makes up approx. 9% of Swiss exports - has been notably affected. As far as the domestic economy is concerned, the tertiary sector, which makes up almost 75% of the Swiss GDP has been hit hardest by the pandemic. However, the direct-hit sectors restaurant, hotels and entertainment make up only a small part of the tertiary sector. The gastronomy, for instance, made up only 1.1% of GDP in 2017, while it was only 0.6% for hotels, art and entertainment. Therefore, their financial losses can be carried by the government for several months. More significant will be the indirect effects of the health measures on other parts of the tertiary sector, such as financial services and insurances.


However, Switzerland has a strong chemical and pharmaceutical industry which makes up almost 45% of its exports. Pharmaceutical companies are expected to benefit from the crisis. Switzerland is also renowned for its production of highly specialized medical products, such as ventilators, which are in high demand since the outbreak of COVID-19.


Italy

Italy was among the hardest-hit countries in Europe. Cases were exceptionally high in the northern part of the country, where some hospitals had to temporarily practice triage as they were unable to treat all patients. Moreover, protective gear was lacking in several regions resulting in medical staff becoming infected. Also, the economic effects for Italy are especially tough because of its high level of public debt (134.8% of GDP in 2019), which creates substantial risk for the monetary union.


Containment Measures


Closures of restaurants

  • 1st wave: 10 March – 12 June

  • 2nd wave: since 24 December (not everywhere, but according to the three levels of alert)


Closures of retail

  • 1st wave: 10 March – 18 May

  • 2nd wave: since 24 December (not everywhere, but according to the three levels of alert)


Closures of non-essential services (e. g. hairdressers)

  • 1st wave: 10 March – beginning of 2 June


Closures of leisure facilities

  • 1st wave: 10 March – beginning of 2 June

  • 2nd wave: since 24 December


Closures of schools and kindergartens

  • 1st wave: 10 March – September


Closures of non-essential factories

  • 1st wave: 10 March – 4 May


All-Day curfew

  • 1st wave: 10 March – 4 May


Economic Relief Measures

The Italian government supports its economy with emergency liquidity assistance and grants worth €180 billion. Liquidity assistance is granted depending on the economic fallout of individual businesses and freelancers. On top of that, it has announced €500 billion in loan guarantees of which the Italian Italian State Development Bank (CDP) carries €400 billion. Access to short-time work has also been facilitated, and business-related layoffs have been prohibited. Short-time work refers to a social insurance program whereby employers reduce their employees’ working hours without laying them off. The government provides these employees with 80% of their income for the hours during which they could not work. Moreover, taxes and duties have been suspended for SMEs. Freelancers and families can receive tax-free grants.


Economic Stimulus Package

Italy shall receive €65.4 billion in grants from the European Recovery and Resilience Facility of which €44.7 shall be allocated in 2021-22. These funds shall be spent in several areas according to the country’s recovery plan draft. A major share shall be dedicated to the ecological transition, sustainable mobility and infrastructure. A concrete measure that has already been announced are investments in energy efficiency. The government offers a 110% tax credit over five years for energy efficiency investments in buildings made by the end of 2021. These investments also include the expansion of solar installations and charging stations for electric cars. Moreover, investments in digitalization and innovation as well as in education and research are planned. Lastly, investments in gender equality and healthcare are to be made. The Financial Times reports that many Italian business leaders have criticized the recovery plan which according to them lacks crucial reforms or detail on governance and procedure. They are especially concerned about bureaucracy, which is expected to hinder investment.


Sector/ Industry Assessment

The pandemic hit Italy’s economy hard because of its dependence on tourism (13% of GDP in 2019) and the closures of factories in the first wave. In the manufacturing sector, the most significant losses are seen in the mechanical engineering, metals and textiles industries. While mechanical engineering already struggled in 2019, the textile sector lost many international buyers due to the pandemic. In 2017, the four main buyers of fashion and other textiles came from China, France, Spain and Germany. Within the medical technology sector, only a small group of companies was able to benefit from the sale of urgently needed products. In contrast, the market for business services in cleaning, security and facility management is developing positively given the high requirements for hygiene.


Considering the economic stimulus package, it can be deduced that the construction sector will benefit from the crisis as investments in buildings’ energy efficiency and infrastructure, more generally, will rise. Also, producers of green technology, such as photovoltaic cells and electric cars, can gain from the crisis. It is expected that the market for renewable energies will develop positively due to the good natural conditions in Italy as well as the climate targets of the EU. Considering the planned investments in digitalization, IT soft- and hardware as well as cybersecurity experts, are expected to seize business opportunities.


The Netherlands

During the first wave, the Netherlands was not among the hardest-hit European countries. While initially the strategy was geared towards group immunity, it changed quickly towards an “intelligent lockdown”, meaning that all shops were to remain open, except for bars, restaurants, and museums. Nonetheless, compared to other EU member states, the Netherlands was hit harder during the second wave. Consequently, it has imposed a full lockdown for the first time towards the end of December. Additionally, the Netherlands has received criticism for being the only EU member state to not start vaccinations in December 2020, despite already having received the vaccines.


Containment Measures


Closures of restaurants

  • 1st wave: 16 March - 1 June

  • 2nd wave: since 14 October


Closures of retail

  • 2nd wave: since 15 December


Closures of non-essential services (e.g. hairdressers)

  • 1st wave: 23 March - 11 May

  • 2nd wave: since 15 December


Closures of leisure facilities

  • 1st wave: 16 March - 1 June

  • 2nd wave: since 15 December


Closures of schools and kindergartens

  • 1st wave: 16 March - 11 May

  • 2nd wave: since 16 December


Closures of non-essential factories x


All-Day curfew x


Economic Relief Measures

The Netherlands has adopted packages of economic relief measures since March. It has announced direct fiscal impulse (€29.7 billion), tax deferrals (€64 billion) and other liquidity and guarantee measures (€26.6 billion). These numbers are expected to rise in 2021, as the lockdown has been extended into February. The most important direct fiscal impulses include “NOW”, a scheme designed to temporarily bridge crisis situations while avoiding job losses (€20 billion), to provide income support to self-employed workers (€2.45 billion), and emergency support to businesses that were forced to close (€2.67 billion).


Economic Stimulus Package

Since the allocation of the EU recovery fund is largely based on the member states’ economic strength before the pandemic and on their population share, the Netherlands will not receive a large sum of money through this fund. However, this does not pose a direct threat to the country, due to its strong AAA credit rating. It is estimated that the Netherlands will be granted less than 5% of the recovery fund and that it will receive €5.6 billion in grant allocations. Of the €5.6 billion, €3.7 billion will be dispersed in 2021 and 2022. Additionally, the Netherlands will establish a National Growth Fund to invest in “long-term earning power”: €20 billion will be invested in knowledge, innovation, and infrastructure over the next five years.


Sector/Industry Assessment

As the Netherlands has one of the most integrated economies in the world, the country is particularly vulnerable to external and global crises like the COVID-19 pandemic. The Dutch economy largely relies on the export of goods and services (60% of GDP). Nonetheless, this also means the Netherlands is largely interdependent with other countries and is thus vulnerable to potential production chain disruption across the world. Additionally, Dutch economists estimate that horeca (hotels and bars) and construction are the two industries that have been hit the hardest, with an expected negative growth of 4%. Nonetheless, as vaccination progresses and Europe recovers from the pandemic, these industries are also expected to experience explosive growth in 2021.


Furthermore, in line with the Urgenda judgment and the EU recovery fund, the Netherlands will aim to reduce its CO2 emissions. One can therefore expect a growth in sectors related to innovation, knowledge, and green technology.


France

France is among those European member states that seems to have been hit quite substantially in both the first wave and the second wave. Throughout the pandemic, there has been a willingness of President Macron to be a leader across the EU: together with Germany, it proposed the EU Recovery Fund in May. Although France’s approach to the second wave has been viewed positively, there has been growing criticism towards its slow vaccination program.


Containment Measures


Closures of restaurants

  • 1st wave: 13 March - 2 June/15 June (Paris)

  • 2nd wave: Since 28 October


Closures of retail

  • 1st wave: 17 March - 11 May

  • 2nd wave: 28 October - 28 November


Closures of non-essential services (e.g. hairdressers)

  • 1st wave: 17 March - 11 May

  • 2nd wave: 28 October - 28 November


Closures of leisure facilities

  • 1st wave: 13 March - 2 June

  • 2nd wave: Since 28 October


Closures of schools and kindergartens

  • 1st wave: 12 March - 11 May


Closures of non-essential factories x


All-Day curfew

  • 1st wave: 17 March - 11 May

  • 2nd wave: 28 October - 15 December


Economic Relief Measures

In order to alleviate the economic impact of containment measures, France adopted extensive economic relief packages. So far, it has spent €135 billion on fiscal measures (6% of GDP). Additionally, France has adopted a €327 billion (around 15% of GDP) public guarantees package. The most important fiscal measures include increasing spending on health supplies, postponement of social security and tax payments for companies and an accelerated refund of tax credits, as well as support of wages of workers and direct financial support for enterprises and low-income households.



Economic Stimulus Package

France is the third largest recipient of the Recovery Fund, with only Spain and Italy receiving more money. France is set to receive €37 billion in grant allocations, of which €22.7 billion will be allocated in 2021 and 2022. France will present its investment and reform strategy to unlock these grants to the European Commission in early 2021. Furthermore, France has released its own national recovery plan - Plan de Relance - in September 2020. Forty percent of the €100 billion recovery plan is funded with the money France will receive from the EU recovery fund. This recovery plan is focused on the green economy. €30 billion will be set aside for four key sectors: energy retrofits for buildings, transport, the agricultural transition, and energy.


Sector/Industry Assessment

Due to the strict containment measures that have been imposed in France, four sectors have been hit in particular: the tourism, automobile, aerospace, and tech industries. These four sectors have already received €40 billion in June 2020.


In line with the EU recovery fund and France’s national recovery plan, we can expect that industries that are related to France’s ambition to be the first major low-carbon economy will experience growth. These include the four key sectors, namely energy retrofits for buildings, transport, the agricultural transition, and energy, but also green tech, and industries that support the digital transition.




For the Original report, please click on the link below:

COVID-19 The Vaccinated World 2021 Risks
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