Here Is What Could Delay Europe’s Economic Recovery in 2021 - Barron's

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Europe received some good news and some potentially not-so-good news this week.

First, the European Medicines Agency, or EMA, recommended conditional approval for the coronavirus vaccine jointly developed by U.S. drug company Pfizer (ticker: PFE) and German partner BioNTech (BNTX), paving the way for the continent’s vaccinations to start within a week.

But just ahead of that, the U.K. announced that it had located a potentially more contagious strain of Covid-19 and locked down a chunk of the country, sparking travel bans from European nations and elsewhere. That news also spooked financial markets on Monday.

While the vaccine rollout should lead to easing restrictions in the second quarter, “the gradual pace at which production is being ramped up, and the emergence of the new virus variant, raise the risk that the rebound will start later into Q2 than we have assumed, and from a weaker starting point,” said David Oxley, senior Europe economist at Capital Economics, in a note to clients.

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And while one big authorization hurdle is now complete, the near-term rollout will be constrained by production, he said. “The three vaccines that have completed phase III trials will do the heavy lifting of protecting the most vulnerable, and may hold the key to the easing of virus-related restrictions,” he said.

The vaccine rollout from Pfizer and BioNTech may start before Christmas, but the rollouts for Moderna (MRNA) and AstraZeneca’s (AZN) still-under-review vaccines are unknown. Oxley said based on announced production plans by those companies, and how much the European Union is ordering, it could take until March to produce all the doses needed to cover health-care workers and those over 65 for the region.

And once vulnerable groups are vaccinated, it isn’t clear how quickly the EU will lift restrictions, given that the virus will still be circulating across populations. The economist said May or June seem more realistic for lifting those deadlines, rather than April.

There is also the matter of vaccine rollouts happening in different times for different countries, with Denmark planning to start as soon as possible and German aiming for January, for example. Countries that have more older than younger people may move slower to vaccinate the larger populations, as they run up against shortages and vice versa. If every country has to wait for all populations to be vaccinated, tensions could rise, Oxley warned.

“This raises the chance that the bounce backs in economic activity between countries may not be as synchronized as the downturns,” he said.

The economist also expects other European countries may tighten up restrictions in coming weeks if that new U.K. variant of the virus shows up, or another mutation.

Still, Oxley remains “cautiously optimistic” that Europe’s Covid-19 restrictions will ease up in the second quarter, sparking economic activity.

“However, the balance of risks is skewed toward this boost being a bit smaller, and arriving later in the quarter, than we have hoped,” he said. “Moreover, the darkening clouds over Q1 suggest that the rebound will be from a weaker starting point too,” he said.

Write to Barbara Kollmeyer at bkollmeyer@marketwatch.com

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