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COVID-crisis and economic growth: Tendencies on potential growth in the European Union

Author

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  • Péter Halmai

    (Faculty of Economics and Social Sciences, University of Technology and Economics, Budapest, Műegyetem rkp. 3, H-1111, Hungary
    National University of Public Service, Budapest, Hungary)

Abstract

The main objective of this paper is to identify the impacts of the COVID-crisis on growth, in particular on growth potential in the European Union (EU), in the context of a broader growth analysis. The quantitative analysis underlying this paper focuses on the financial and economic (“Great”) recession of 2008–2009, the subsequent recovery and the period of the COVID-crisis. We provide a detailed overview of some of the mechanisms of the COVID-crisis on growth. The COVID-crisis is likely to have a direct impact on the level of potential output. A decrease in investments and labour market hysteresis may have long-lasting effects on potential growth. The former would have a negative impact on productivity. This can lead to increased inequalities and have a negative effect on social cohesion. The future development of divergences among the EU Member States is particularly important. Their possible intensification could disrupt the functioning of the euro area and the internal market. A lasting source of potential growth in the EU Member States could be productivity growth. Its decisive structural factor is the growth dynamism of total factor productivity (TFP). There are large differences in this area with regard to the level and growth dynamism of performance of the Member States. Narrowing the output gaps vis-à-vis the front-runners through deep structural reforms could be a key factor in raising growth potential. The cleansing effects of crises, which force structural change and resource reallocation, can also create new opportunities for TFP growth.

Suggested Citation

  • Péter Halmai, 2021. "COVID-crisis and economic growth: Tendencies on potential growth in the European Union," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 71(supplemen), pages 165-186, November.
    • Handle: RePEc:aka:aoecon:v:71:y:2021:i:supplement1:p:165-186
    DOI: 10.1556/032.2021.00034
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    Citations

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    Cited by:

    1. Barbara Batóg & Jacek Batóg, 2024. "Sustainability of Income Convergence in the European Union: Two Downturns—Two Different Stories," Sustainability, MDPI, vol. 16(3), pages 1-16, February.
    2. Andrej Privara, 2022. "Economic growth and labour market in the European Union: lessons from COVID-19," Oeconomia Copernicana, Institute of Economic Research, vol. 13(2), pages 355-377, June.

    More about this item

    Keywords

    European Union; economic growth; productivity;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F - International Economics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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