BlackRock Investment Institute

Macro insights

Europe's restart taking shape

The European restart looks set to resume as mobility restrictions are gradually lifted. The bloc’s vaccination rollout is gathering pace after a sluggish start. This expectation of a delayed restart ultimately taking shape was one reason we upgraded European equities to neutral earlier this year.

Fiscal support

Chart showing estimates of the fiscal support in response to COVID-19

Sources: BlackRock Investment Institute, May 2021. Notes: The chart shows average broker estimates of the discretionary spending measures introduced in response to COVID-19. For euro area economies, total spending is broken down into estimates of the contribution from borrowing by national governments (orange) and funded by the EU Recovery and Resilience Facility, assuming funds begin to get disbursed towards the end of 2021.

Policy support – from key fiscal measures taken at the European Union (EU) and national level to the European Central Bank maintaining easy financing conditions – will be crucial to the restart’s staying power. Withdrawing policy support too early would raise the risk of permanent economic scarring, in our view. The suspension of EU debt and deficit rules until at least 2023 and the prospective disbursement of funds from the EU’s Recovery and Resilience Fund (RRF) are encouraging signs. Covid-related fiscal support in 2021 has been on par with last year’s, as shown in the chart.

We believe Europe will avoid a fiscal cliff once the restart completes. The focus can then shift to long-term priorities on green investment, digital transformation and raising potential growth.

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