The COVID-19 outbreak and the resulting lockdowns have impeded export and investment volumes in Western Europe and consumer dynamics are set for subdued growth throughout 2021, disrupting the promising trajectory of economic growth for the region through 2021. The eurozone slipped into deflation in August, unemployment climbed to 8.1% of the active labor force from 7.4% pre-COVID, and retail sales recorded minimal growth in July and August, reflecting that the Western Europe outlook recovery loses steam as new COVID-19 cases rise. The second lockdown is not expected to damage growth as much as the first lockdown did, thanks to continued fiscal support and less stringent restrictions in most Western European countries. However, the second lockdown will delay once more the return to pre-pandemic economic activity.
The economic recovery quickly loses steam. Western Europe is combating the second wave of the pandemic, and authorities are timidly relaxing lockdown measures in December by allowing retail shops to reopen. COVID-19 will deal a heavy blow to the economy once again, suppressing employment growth and weakening investment. The already-sharp declines in exports and investments show no signs of swift improvement, and thus we expect a moderate bounce-back in eurozone growth in 2021.
Consumers will not return to their pre-COVID consumer habits in 2021. Economic fragility and restrained fiscal capacity before the crisis left little room for robust support to weak consumer demand. Large exposure to the travel and tourism, food service, and transportation sectors will result in protracted employment losses, signaling price-sensitive consumers. In a post-pandemic world, pronounced digital and work-from-home trends will reshape consumer behavior long-term. This digital space remains the greatest opportunity for businesses operating in Western Europe as growth stalls across industries.
Geographical and sectoral segmentation will be key for optimal planning. Western European countries with relatively healthy epidemiological and economic profiles are poised to recover more swiftly from the crisis overall. Countries that enforced a lockdown earlier and lifted it relatively sooner, as well as expanded mass testing and contact tracing efforts, are set to return to pre-COVID-19 economic levels faster than their counterparts, though still not for quite some time. Large stimulus packages with direct disbursements and a stronger manufacturing component will somewhat alleviate economic pressures in certain geographies. Germany shows comparative resilience to other Western European countries with its focus on manufacturing, while the United Kingdom will continue to struggle amid Brexit uncertainty.
Actions for Business Professionals
- Closely engage with distributors, partners, and dealers to understand the operational and demand problems they face during the pandemic.
- Regularly segment your portfolio amid persistent shifts in consumer patterns, and monitor customers’ inclination to spend.
- Closely monitor shifts in demand and consumer preferences and carefully segment geographies and sectors to identify emerging opportunities.
Download an executive summary of our 2021 Western Europe Outlook for a full breakdown of the global drivers of the region in 2021 and how they impact your business:
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