HomeSharp Discrepancies Between European Union Members’ GDP

Sharp Discrepancies Between European Union Members’ GDP

9 September 2020 By Mircea Vasiu

European GDP data released yesterday reveals, once again, a sharp difference between the member countries. The headline number came out a tad better, at -11.8% when compared to expectations of -12.1%, more or less in line with what the market expected. 

A close look at the GDP performance of different Euro area countries helps us better understand the difficulties the ECB faces in setting the monetary policy. More precisely, every six weeks, the ECB reviews the economic performance in each Euro area country and in the Euro area as a whole and sets one policy that must fit all.

That is a challenge no other central bank in the developed world has. For this reason, the ECB was credited with few chances to survive the test of time, with many saying that at the first economic recession, the Euro area is doomed to fail.

So far, the ECB proved everyone wrong.

Touristic Destinations Hit the Hardest in Q2 2020

Unsurprisingly, countries depending on the holiday season were affected the most during the second quarter. Spain was hit the hardest, as it employs a considerable number of people in the industry, and, in some regions, tourism makes up almost the entire economic sector (e.g., Balearic Islands). With that part of the economy shrinking almost to zero, it comes as no surprise that the Spanish GDP shrank by almost a fifth when compared to last year’s performance.

Croatia, Greece, Portugal, and France join the pack. At the opposite end of the spectrum, Nordic and Baltic countries weathered the crisis better. Finland, Lithuania, Denmark, or Sweden were credited with better handling the coronavirus pandemic, and their economies do not depend on the number of tourist arrivals like, say, the French or Greek economies. As such, the impact of the crisis is somewhat milder.

Coming back to the ECB, the central bank uses the national banks in each of the Euro area member countries as its eyes and ears in the territory. While the ECB is responsible for setting the monetary policy in Frankfurt, the national banks help with the implementation. Also, they play a crucial role in gathering data from the territory and passing it through to the ECB staff members. These ones, in turn, present their staff projections every two ECB meetings, helping both investors and financial press representatives in understanding the ECB decisions and the reasoning behind them.

All in all, the dispersion of GDP performances is nothing short of amazing. For once, one can understand the challenges the ECB faces when setting one policy to fit both Finnish and Spanish economic conditions.

Tags:
EU