Most forecasts crucially depend on the assumptions we make on how long it will take to get back to normal. Several observers suggest that in a few months, the most acute phase of the virus will be behind us. Yet, some social distancing measures are likely to remain in place longer, and for some sectors the recovery will be particularly gradual. To have a better sense of what firms are expecting, we take a closer look at the forward-looking component of the European Commission Survey, more specifically the “Expectations of demand in the next three months” for the services sector (Figure 5) and the “Production expectations” for manufacturing sector (Figure 6) from the European Sentiment Indicator. They provide valuable insights into the most significant sectors of the EU economy.
With a few exceptions, the ranking of the most affected sectors is rather similar across EU member states at the current juncture. It is, however, likely that the negative country impact will be shaped by the respective weight of the most affected sectors in the overall structure of the economy. Moreover, some general considerations are due: the loss in demand for some consumer non-durable manufactured products (Figure 6) will not be recovered (i.e. the spring fashion collection) but after some time, the economy will gradually normalise. Purchases of durable goods will likely be postponed for as long as the crisis lasts and the same will happen to investment goods, with corporates postponing capital expenditures. In the services sector (Figure 5), normalisation could be, however, longer. For instance, services that are linked to people’s movement, such as tourism, travelling and the ones involving crowded locations, such as restaurants, have come to a complete stop. It is unclear how long it will take to resume previous consumption patterns. However, it is likely that consumer behaviour will remain impacted for a prolonged period and that some components of services will take very long to recover fully. In other words, while a progressive relaxation of containment measures to get people back to work can happen sooner, going back to a 'normal' social life will probably take much longer. Meanwhile, pharmaceuticals, telecom and IT services could experience stronger demand now and in the future.
An initial assessment of most exposed sectors in terms of value added by Member States shows that some countries are more exposed to shock than others. This assessment is also conditional on policy measures undertaken to support demand (particularly for investment goods by corporate and durables by consumers) and the evolution of the pandemic, i.e. the length of containment measures (particularly affecting services). Figure 7 compares the exposure of different EU countries to the potentially most hit sectors. The pink columns refer to negatively affected industries; the blue columns represent the positively affected industries. In the lower part of the figure, in the pink columns, the cells highlighted in green are showing the countries for which the specific industry has a higher share (on total value added in that country) than the average, and the darker the colour, the higher the share. In the case of the red colour (the darker, the lower) the countries’ share is lower than the average. For positively affected sectors (those in the blue columns) red is the colour highlighting higher shares and blue is the colour for lower shares. The upper part of the table simply ssummarises the countries with higher shares.