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Europe: Economic Recovery Underway, but Far Below Normal

As Europe and UK re-emerge from lockdowns, governments face a delicate balancing act between containing COVID-19, not overwhelming healthcare systems, maintaining social stability, and preserving economic capacity.


Government financial support programs have further to go. Implementation – ensuring that the most needy individuals and companies receive timely and sufficient support – has differed by country. A pan-European fiscal approach is moving closer, which could be positive.


Central banks have supported bond market stability and bank payment systems, as well as providing cheap lending. Citi analysts expect both the European Central Bank (ECB) and the Bank of England (BoE) to expand their asset purchase programmes in size and breadth. GDP recoveries are underway, but activity levels are still far below normal levels, with risks that recovery paces could slow.


Separately, as the UK enters the last six months of the Brexit transition period, Citi analysts expect a basic trade deal between the EU and the UK to be agreed in the autumn.




Equities may recover in relative terms, as the growth differential with the US narrows, and as European policymaking gets more aggressive. Citi analysts expect COVID-19 cyclical sectors may catch up in the near term. Balance sheet strength is vital and a key differentiator for selection in the months ahead.


The impact from COVID-19 reinforces some of Citi’s views from the start of the year. These include staying invested, diversifying sensibly, and embracing higher volatility. Citi’s long-term “Unstoppable Trends” like fintech and cybersecurity still offer attractive potential.

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