The macro-economic outlook
While our first concern is for the health of our citizens, the Commission is also actively monitoring the economic repercussions of the coronavirus in our Member States and beyond. The Commission’s Winter Economic Forecast, presented on 13 February 2020, already identified COVID-19 as a new downside risk for the European economy and developments since then indicate that this risk is now partially materialising. However, the considerable uncertainty at this stage makes forecasting the impact of the virus on Europe very difficult. We are confident that the expertise and professionalism of Europe’s health and civil protection systems, and our overall coordination of national efforts, will serve to minimise that impact.
The Commission has teams in place to closely monitor developments in manufacturing, trade, tourism and global markets and the effect COVID-19 is having on these.
Executive Vice-President Dombrovskis and Commissioner Gentiloni are in direct touch with the Italian authorities about Italy’s fiscal decisions in relation to COVID-19.
The Commission is preparing the following measures to support EU countries in their efforts to
- make sure that state aid can flow to companies that need it
- make full use of the flexibility which exists in the Stability and Growth Pact
President von der Leyen will present concrete ideas before the Eurogroup on 16 March 2020.
Corona Response Investment Initiative
The Corona Response Investment Initiative will be directed at
- the health care systems
- labour markets
- other vulnerable parts of our economies
In order to quickly direct €25 billion of European public investment to deal with the fallout of the Coronavirus crisis, the Commission will propose to relinquish this year its obligation to request refunding of unspent pre-financing for European structural and investment funds currently held by Member States.
The Member States will be required to use these amounts to speed up their investments under the structural funds. They will use this for the national co-financing they would normally have had to provide themselves in order to receive the next tranches of their structural fund envelopes. In view of the average co-financing rates across Member States, the €7.5 billion will be able to trigger the release and use of some €17.5 - €18 billion of structural funding across the EU.
This proposal can be implemented through a modification of the common provision regulation for the structural funds. The Commission will make this proposal to Council and Parliament this week. The national operational programmes would then be adapted, where necessary, to channel the funding towards areas such as short-term work measures, the health sector, labour market measures, and sectors particularly affected in the current circumstances.
Update of impact upon transportation, also in relation to border controls on the basis of the Schengen acquis.
International Air Transport Association (IATA) has published its economic impact assessmentonline - UPDATED 05/03
The International Chamber of Shipping, the global shipping body representing 80% of the world’s merchant fleet, estimates that the virus is costing the industry $350m a week in lost revenues. More than 350 000 containers have been removed from global trade. Global supply chains continue to suffer, and issues remain around the quarantining of ships at ports.
Port calls in China have dropped by over 30% since the beginning of 2020 and total throughput in Chinese ports has fallen by more than 20% in recent weeks (the latter according to Alphaliner Research Agency, the organisation that monitors container shipping). Overall, there have been 49% fewer sailings by container ships from China in the last four weeks.
Rotterdam and Hamburg have been hit the hardest in Europe with regard to containers from Asia. There has been an estimated 0.7% reduction in global traffic in the first quarter of 2020 but the consequences could be much higher for specific ports, depending on the duration of the crisis. One estimate for the port of Rotterdam shows an annual reduction of 1%, or 150,000 containers.
At this time, the inland ports have not yet flagged any real decline. However, a similar effect can be expected in inland ports in the coming months as the hinterland traffic will decline. The reduction of trains coming from China will also start to have an effect.
The forecasted drop of 20-25% in global shipping industry throughput will have a corresponding impact on the port terminal industry. Whereas the shipping industry to some extent can mitigate costs by idling vessels thus avoiding fuel and terminal handling costs, the cost base of port terminals is far more inelastic in the short term. A terminal’s highest operating cost is usually labour of which only minor costs can be mitigated (overtime, etc).
In addition, all ports and terminals will face a build-up of empty containers with corresponding yard congestion whilst at the same time there are requests from shipping lines and customers to waive storage charges due to the virus ‘force majeure’.
Tourism is the 3rd largest sector of the EU economy. It generates 10.3 % of its GDP and employs 27 million people (11.7% of all EU jobs). China is the third largest source of international visitors for the EU, after the USA and Russia. The segment of Chinese tourists is growing strongly, with 2.8 million Schengen visa applications in 2018 representing an increase of 11.3% over 2017.
Following the outbreak of COVID-19, the EU tourism sector is confronted with
- the loss of a high proportion of Chinese travellers since the end of January. Most European carriers have suspended their flights to China until the end of March and most Chinese bookings in Europe over the Chinese New Year were cancelled. The likely impact on the EU tourism industry for January to the end of April 2020 is a possible loss of approx. 400,000 Chinese travellers and 2 million nights (preliminary estimates)
- the loss of other key international travellers affected by the virus outbreak in their country (Japan, South Korea) or cancelling trips because of the increase in cases in Europe (USA, Canada, etc.)
- cancellations and reduction in bookings for trips of Europeans within the EU (intra-EU tourism representing 60% of tourist arrivals)
- Drop in city trips linked to uncertainty about contamination risks and timely return
- Downsizing and cancellations of major Trade Fairs and other events
In order to monitor and help manage the situation in real time, the European Commission is in constant contact with Member States’ ministries responsible for tourism, specialised international organisations (UNWTO and OECD) and with its industry (notably through an ad hoc network gathering EU professional associations, in collaboration with the European Travel Commission).
Trade and industry
The economic impact of COVID-19 will vary across industries and firms depending upon a number of factors including the exposure to China as source of intermediate inputs, the possibility to shift to alternative suppliers, and the existence of inventories or reliance on just-in-time production processes.
The European Commission is in close contact with national authorities, industry representatives and other stakeholders in order to monitor and evaluate the impact on European industries and trade.