The pandemic-induced crisis has hit it the world in highly unequal manners both across borders and within countries. Most economies slid in a recession that has wretched livelihoods in some countries and macro-regions, whereas others are mostly unaffected. These differences clearly stand out at the global scale, but they can be massive also when comparing otherwise-similar, neighbouring countries.
Lately, an heterogenous set of behemoth and middle-sized economies has come back strongly in terms of both GDP and unemployment. Leading them, for different reasons and in different ways, stand the two largest economies ever: China and the US. These superpowers are steaming their way out of the crisis like locomotives on an uphill railway, boosting the global economy.
Yet, a piece is missing in this rosy mosaic of recovery and growth: the European Union. As the largest and richest market in the world, the EU could contribute massively to a worldwide rebound. However, internal unbalances, other structural weakness, and political indecisiveness are holding the Union back. This has had dramatic reverberances of the weakest economies of the EU and on those that depend on the block. This piece explores recently-released quarterly data for 2020 to understand what has happened on the EU’s periphery through two cases.
Bulgaria — Failing to escape the fall
Bulgaria’s economy took a heavy hit in the beginning of 2020, when in just four months GDP slid by 21.89%. Notably, these data marked the sharpest decreases since the hyperinflation of 1996–1997.The situation got worse in the last quarter of 2020, when the economy began slowing down. Between October and December, about 280,000 people lost their job, a spad of about 8.5% on the previous quarter. A dire economic trend thrust most of these workers to inactivity, thus ‘softening’ total unemployment’s growth year on year.
Gross Domestic Product
The economy’s dynamic turned around and stayed positive for the rest of the year leading to a strong recovery (Chart1). In the following three quarters, Bulgaria added grew its added value by 6.85%, 14.05% and 4.69%respectively. By the end of the year, GDP equalled 99.66% of its 2019 level, against the Euro Area’s (EA) 96.86%.
Un/Employment
Interestingly, unemployment figures for most of 2020 do not mirror Bulgaria’s generally positive economic performance — all the contrary (Chart 2). Unemployment decreased in the first quarter of 2020, but rose fast in the ensuing nine months despite overall growth. Due to the pandemic-induced crisis, employment decreased by 64,260 units year-on-year in 2020 Q4, or almost 2%.However, these data actually mask a feature of the Bulgarian labour market that most of its Eurozone partners lack. In fact, Bulgarian enterprises have a rather more flexible approach to starting and ending employment than other EU workers. Thus, the growth in unemployment is mostly due to new people entering the job market during 2020 Q2–Q3. All in all, in September 2020 the number of employed people had grown by 6.42% in Bulgaria compared to 2019 Q3. Yet, these figures were insufficient to absorb an outpour of new potential workers — pushing unemployment up.
Greece — Summer boom or double-dip recession?
The crisis struck Greece’s economy sensibly in the first half of 2020, especially in the spring, when tourism was inhibited. Like in Bulgaria, the situation got worse in the last quarter of 2020 and the economy shrunk again. The data indicate that half of the new workers lost their job in the last quarter of 2020. Unfortunately, a large chunk of them stopped looking for a job and became inactive — making unemployment statistic even more misleading.
Gross domestic product
In the first quarter, GDP slid by over a tenth in comparison to March 2019 (Chart 3). As such, the pandemic induced a recession the likes of which Greeks last witnessed in the early 2010s.Yet, during the summer of 2020 many countries reopened their borders and Greece enjoyed increasing influxes of tourists. This reflected positively on the economy’s dynamic in the third quarter, when Greece added six billion euros to its GDP. This 20% growth on the previous quarter was partly dissipated over the last part of 2020. By the end of December, that gain halved and GDP was about 7% lower than a year before.
Un/employment
Contrarily to Bulgaria, for most of 2020unemployment figures do not resent of Greece’s unsatisfying overall performance (Chart 4). Unexpectedly, unemployment decreased by almost 5% in the first quarter of 2020 compared to December 2019. The decrease is even more spectacular in comparison to the same quarter of the previous year: 1.8%. In total, during the summer quarter (July–September), Greece’s economy added 73,800 jobs in comparison to the previous three months. However, these figures were still lower than last year’s levels by about 74,700 units or 1.6%. Moreover, Greece’s population is not very active in the labour market. In effect, on average Greeks less likely to be looking for a job than their Eastern Balkans peers in Bulgaria and Romania. Moreover, lower participation rates mean that the seasonal gains failed miserably in trickling down to the working class. Thus, it is possible that economic growth has been relatively weaker than GDP statistics may indicate.
Conclusion: Pandemic management matters
There are two lessons that one can draw from these figures and by comparing the cases of Bulgaria and Greece. The first, relates to the pandemic and how its management can affect economic performances. Whereas the second sheds a light on the future prospects of these countries.
In a way, the data arguably corroborate the hypothesis that the lockdowns-recession cycle admits inversion. In fact, Bulgaria performing better than Greece for most of 2020 despite political instability suggests that less lockdowns favour growth. Obviously, the rather lenient anti-pandemic measures that Sofia has opted for explain this gap only partly. Yet, it is a fact that Bulgarian authorities were quite unwilling to adopt stricter measures since the pandemic begun. The necessity to appease the protestors who took the street in July–September contributed to a more relaxed approach. It was only during the winter that the Bulgarian government resorted to though restrictions and shut down so-called ‘non-essential’ activities. And Bulgaria’s data only start to worsen – converging on Greece’s and the Eurozone’s trends – in the last quarter of 2020.On the contrary, Greece went from a harsh lockdown to the next one almost without solution of continuity. The government only released its grip over the summer — and, in fact, the economy benefitted greatly.
Furthermore, these data confirm that the periphery of the EU has suffered more during the last year. True, the EU has put on the table billions of euros over the next several years for nationally-defined Recovery plans. And both Athens and Sofia expect to spend much of that money to jumpstart their economies and support employment. However, fiscal policy is not that effective in either of the two countries as this crisis has proven once again. In effect, both countries have spent massively on furloughs and other support schemes to keep people employed — without many results. Political contingencies and vote-seeking behaviours are likely to dictate the allocation of further spending, thus capping policies’ positive potential impact.
