Coronavirus will widen the economic gap between southern and northern Europe due to dependence on tourism, high numbers of SMEs and structural unemployment

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Coronavirus will widen the economic gap between southern and northern Europe due to dependence on tourism, high numbers of SMEs and structural unemployment


This Monday, 4 million workers in industry and construction have resumed their activity in Spain, at the end of the suspension of employment in non-essential activities in force since last March 30 to slow down the rate of coronavirus infections. Meanwhile, other sectors, such as commerce or hospitality, which have 3 million and 1.7 million employees, respectively, remain closed waiting for the pandemic to be overcome.

In Spain, Italy, France or Germany, among other countries, it has been made easier for companies to temporarily pay their workers’ wages to avoid an increase in unemployment like the one experienced in the United States in recent weeks. In this way, liquidity is offered to companies and they are freed from their salary expenses to facilitate their recovery when the pandemic passes.

Precisely, the weight of tourism and hospitality in GDP and employment in Spain could be a factor that will drag down the recovery of the economy after the coronavirus in the future, according to ING economist Steven Trypsteen, who points to an unemployment rate of 13.8%, the contribution of tourism to GDP, the volume of SMEs in the business fabric and the high number of self-employed or as part of of the underground economy as main obstacles.

However, ING not only considers that these risk factors for a greater impact of the coronavirus do not only occur in Spain and points out that the economic consequences of the pandemic will be more severe in southern than northern Europe and will significantly increase the gap that already exists between EU countries, as stated Financial Times.

Thus, the countries of the southern EU will have a more difficult time recovering from the impact of the coronavirus because tourism and SMEs have a greater weight in their economies than in their northern neighbors, according to Carsten Brzeski, economist at ING. For the expert, “it is obvious that the countries of southern Europe will suffer more than those of the north”, given that the latter depend to a lesser extent on sectors directly affected by the virus.

As regards tourism and its weight in the economy in general, the latest official data published by the Community statistical office Eurostat, corresponding to 2016, reveal that Greece is the country in which tourism has a higher percentage of workers compared to the total of its labor market, with 23.9%, followed by Cyprus (20.3%), Malta (15.3%), Ireland (13.3%), Austria (12.7%) and Spain (12.3%).

Meanwhile, southern Europe also leads Moody’s figures on the weight of companies with less than 50 employees across the business fabric of their respective countries. So, in Greece the smallest SMEs in size of staff are almost 80% of the companies in the country, while in Italy and Portugal they exceed 60% and in Spain they remain slightly below that figure.

However, other sources reflect a very different scenario. February statistics from the Directorate-General for Industry and Small and Medium-sized Enterprises show that 54.24% of SMEs do not have employees, 39.31% are micro-SMEs with up to 9 employees and 5.39% have up to 49 employees. That is to say, 98.94% of Spanish companies have less than 50 employees, which supposes a greater risk of impact of the coronavirus and a lower capacity to face it, according to ING.

The third factor to which ING’s analysis refers is the state of health of the labor market before the pandemic, reflected in the February unemployment figures and in the percentages of self-employed workers and of the underground economy over the total number of employed persons in a country. In those 3 statistics, southern European countries outnumber their northern neighbors, reflecting a greater vulnerability of employment in the immediate future.

Thus, Eurostat’s February unemployment data places Greece in the lead with 16.3%, followed by Spain with 13.6%, Italy with 9.7% and France with 8.1%. Regarding the percentage of self-employed and workers in the underground economy over the total number of employed people, Greece is the European country with the highest incidence of both, around 30%, followed by Italy, Poland, the Netherlands and Spain, as shows the graph above.

In this way, Greece, Spain and Italy have at the same time a high dependence on tourism to generate employment and as a percentage of their GDP, they have a high structural unemployment and a high number of SMEs, 3 factors that when combined, according to ING, may hinder their way out of the coronavirus crisis, with the aggravating circumstance that Spain and Italy are also among the countries in the world with the highest number of infected.

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