• Economic indicators in the EU such as industrial production and trade (exports and imports) reduced sharply in 2019. This was aggravated by trade tensions, in particular between the US and China.

• Protectionist measures such as extra tariffs on cars and steel and the slowdown in industry production contributed to a decrease of 15% in iron ore transport on the Rhine between 2017 and 2019, which was aggravated by modal shifts in the wake of the low-water crisis of 2018.

• Due to the Covid-19 pandemic, the EU Commission expects the EU economy to contract by 7.5% in 2020 and to grow by around 6% in 2021. A large downside risk to this projection is a longer-lasting pandemic.


Key macroeconomic developments in Europe in 2019

  • Europe saw a sharp contraction of several economic indicators in 2019, notably in the manufacturing sector (This part A is mainly based on European Economic Forecast of the European Commission (Autumn 2019), published in November 2019 (Institutional Paper 115)). A major reason for this manufacturing crisis were trade tensions, which already started to emerge between the US and China years ago and escalated further in 2019. Protectionist measures were also introduced by other countries. The most affected goods were grain, particularly soybean, cars and steel products (Source: United Nations Conference on Trade and Development (UNCTAD), Review of Maritime Transport 2019).
  • These trade tensions were spilling over to Europe more and more, due to cross-border production and logistics chains. Several European car manufacturers produce cars in the US, which are sold to China, and vice-versa. Protectionist trade barriers such as extra tariffs on steel and cars had negative effects on European steel production, and on iron ore transport on the Rhine. Iron ore transport had been growing between 2013 to 2015, from 24.6 million tonnes up to 26.0 million tonnes, and remained stable until 2017. Between 2017 and 2019 it descended to 21.6 million tonnes. Iron ore transport in 2018 and 2019 also declined because steel manufacturers shifted certain volumes from barge to rail in view of the low water problems on the Rhine.
  • Countries with specific vulnerabilities are export-intensive economies such as Germany, the Netherlands, Hungary, the Czech Republic and Slovakia. In all of these countries, except for the Netherlands, car manufacturing has a significant share in industry production and the automobile cluster represents a relatively large part in overall added value and employment. The result was a weakening of EU industrial production and of EU exports and imports, which contrasted sharply with the positive trend that was present until 2017.


    Source: OECD Key Short-Term Economic Indicators
    * Growth rates based on seasonally adjusted data.


  • Further improvements in the labour market, such as a declining unemployment rate and rising employment figures, acted as stabilizers for the European economy in 2019, and held up private consumption at a high level.


Macroeconomic outlook for 2020 and 2021

Macroeconomic scenarios

  • Given the large uncertainties and tremendous challenges that the Covid-19 pandemic imposes on the global economy it is extremely difficult to give an outlook of what can be expected. The International Monetary Fund (IMF) has therefore chosen to present an optimistic baseline scenario based on the assumption of a swift recovery of the economy in 2021 and three additional scenarios relating to a longer virus outbreak in 2020, a new outbreak in 2021, and a longer outbreak in 2020 plus a new outbreak in 2021.
  • In the optimistic baseline scenario of the IMF, the pandemic is assumed to fade in the second half of 2020, allowing for a gradual lifting of containment measures. Yet, in this optimistic scenario, the global economy is projected to contract sharply by -3.0% in 2020, far worse than during the 2008-2009 financial crisis. The forecast for the European Union points to a stronger initial decline (-7.1%) than for other parts of the world (This part is based on the World Economic Outlook, published in April 2020 by the International Monetary Fund (IMF)).


    Source: IMF World Economic Outlook Database, Outlook from April 2020

    • Similar to the IMF projections, the macroeconomic forecast of the European Commission of 6 May 2020 (ECFIN Spring 2020 Economic Forecast) (See: European Commission (2020), Spring 2020 Economic Forecast: A deep and uneven recession, an uncertain recovery; https://ec.europa.eu/commission/presscorner/detail/en/ip_20_799 (4 June 2020)) for 2020-2021 projects that the Euro Area economy will contract by a record 7.8% in 2020 and grow by 6.3% in 2021. The EU economy is forecast to contract by 7.5% in 2020 and grow by around 6% in 2021. The risks surrounding this forecast are exceptionally large and concentrated on the downside. A more severe and longer lasting pandemic than currently envisaged could cause a far larger fall in GDP than assumed in the baseline scenario of this forecast.
    • In the optimistic baseline scenario of the IMF, the global economy is projected to recover in 2021, and grow by 5.8% in 2021 (the EU by 4.8%). However, there are also three other IMF scenarios, reflecting the possibility that the pandemic could be more persistent than assumed.
    • The first alternative scenario assumes that the fight against the spread of the virus in 2020 takes roughly 50% longer than assumed in the baseline scenario. If this were to be the case, then global output would be 3% lower than in the optimistic baseline scenario in 2020. Although the initial decline would be stronger for advanced economies such as the European Union, their higher fiscal capacity and greater financial resources to fight against the crisis and to maintain incomes are assumed to result in less economic scars (long term effects on unemployment, public debts) compared to emerging market economies.
    • The second alternative scenario considers the impact of another, but milder, outbreak occurring in 2021. In this second alternative scenario, global output in 2021 would be almost 5% below the optimistic baseline scenario in 2021.
    • The third alternative scenario assumes the potential impact of both the outbreak lasting longer in 2020 and a second outbreak occurring in 2021. In this case, global output in 2021 would be almost 8% below the optimistic baseline scenario. Tighter financial conditions and more limited fiscal space in emerging market economies would again amplify the impact in these countries.
    • The European Central Bank (ECB) and other central banks are fighting against the crisis with large asset purchase programmes. Current forecasts do not point to a high rate of inflation in 2020, at least not for the Euro area (According to the IMF forecast from April 2020, average consumer prices in the Euro area are expected to grow by only 0.23% in 2020, and by 0.98% in 2021, after a rate of 1.2% in 2019). A weak consumer demand and falling energy and commodity prices are thought to hold inflation rates down. For several countries in eastern Europe, however, inflation is nevertheless a threat, as their currencies are devaluating, due to the flight of capital into ‘safe haven currencies’ such as the US Dollar, Japanese Yen and Swiss Franc. For eastern European countries, this might lead to imported inflation.

    Commodity prices

    • International and domestic travel restrictions throughout the world and a sharp reduction in road traffic are leading to an unprecedented decline in oil demand, as the transport sector accounts for more than 60% of global oil demand. Between August 2019 and March 2020, oil prices fell from $57.60 to $32.30 (-39.6%). Major oil producing countries failed to reach an agreement to reduce production, which accelerated the decline (See: New York Times, Oil Prices Nose-Dive as OPEC and Russia Fail to Reach a Deal, 6 March 2020). This price evolution goes hand in hand with a sharp accumulation in oil stocks, voluntary production cuts and a reduction in oil output. Futures markets indicate that oil prices will remain below $45 per barrel through 2023, reflecting persistently weak demand.
    • Basic metal prices fell by 15% from mid-January to end of March 2020. Metals prices are expected to decrease by 15% in 2020 and by 5.6% in 2021, compared to 2020.


      Source: IMF World Economic Outlook Database
      Crude oil price = simple average of three spot prices (Dated Brent, West Texas Intermediate, and Dubai Fateh), US$ per barrel. Metals price index includes copper, aluminum, iron ore, tin, nickel, zinc, lead, and uranium price indices.


    • Food products and oil seeds are important cargo types in inland navigation. Solid rapeseed is transported by inland vessels to ports, where it is used as raw material for rapeseed oil and biofuel production. Rapeseed oil prices are expected to be 5% lower in 2020 than in 2019. The decrease in prices from 2020 to 2021 should then reach 3%.