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Under a worst-case scenario for the eurozone, the dynamics of the COVID-19 pandemic require a third lockdown in the second quarter of 2021 after the lockdowns in the second and fourth quarters of 2020. If a third lockdown can be averted, eurozone growth in 2021 could be 5.5%. But with a third lockdown, it may be only 2%. Such a large loss of GDP would lead to such a deterioration in the economy that defensive economic policies would no longer suffice to prevent it, per Natixis. 

Key quotes

“Under a worst-case scenario for the eurozone, the first wave of the COVID-19 pandemic and first lockdown in the spring of 2020 and the second wave and second lockdown in the fourth quarter of 2020 are followed by a lull in the first quarter of 2021 and then a third wave and a third lockdown in the second quarter of 2021. This would result from the continuation of the ‘stop and go’ strategy: lockdown when the disease worsens, then easing of the lockdown, then flare-up of the disease followed by another lockdown. ‘Poor’ quarters (Q2 2020, Q4 2020, Q2 2021) would therefore continue to alternate with ‘good’ quarters (Q3 2020, Q1 2021). 

“If another lockdown can be averted in the second quarter of 2021 in the eurozone, its annual average growth in 2021 could be around 5.5%, after -8% in 2020. But if there is another lockdown in the second quarter of 2021, given the shape of the recovery and assuming it is as stringent as the lockdown in the fourth quarter of 2020, annual average growth would probably be only 2% in 2021.”

“In the worst-case scenario, growth in 2021 would be only 2% and the shortfall in the level of GDP at the end of 2021, compared to what it would have been without COVID, would be 3.5%. The magnitude of this loss in the level of GDP is so great that there would be reasons to fear a very negative impact on potential growth, with irreversible effects on employment, human capital and companies’ financial situation. Public health management in the first half of 2021 must therefore aim to avert a third lockdown before a COVID-19 vaccine becomes available.”

 

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