Macroeconomic Impacts of the Covid-19 Pandemic in Some European Union Countries: A Counterfactual Analysis

The aim of this paper is to analyze the macroeconomic impacts of the Covid-19 pandemic in the European Union (27 countries) and, particularly, in four of its economies – Germany, Spain, Italy and Portugal. For this purpose, a counterfactual analysis was conducted based on an ARIMA forecasting model through which the behavior of a set of macroeconomic variables (Gross Domestic Product, public debt, inflation rate, public deficit, and unemployment rate) is examined in the context of the Covid-19 pandemic against a hypothetical scenario without pandemic. In general, the results point to a significantly better performance of all variables in the four countries and in the European Union if the Covid-19 pandemic had not existed. In a scenario without the Covid-19 pandemic, all countries would have achieved higher product levels, showing, however, relatively weaker economic growth rates when compared to the pandemic situation, namely in 2021 and 2022. The results also point to budget surpluses in Germany and Portugal, in 2020, 2021 and 2022, as well as a sharp reduction (over 20 percentage points) in Spanish public debt. In 2021 and 2022, there is also a lower inflationary pressure for the European Union, Germany, Spain and Italy, after a very sharp rise in prices in 2020. Regarding the labor market, with the exception of Germany and European Union, where the unemployment rate would be relatively higher, especially in 2022, the remaining countries would register lower unemployment rates.