The Spanish economy is recovering from the deep recession caused by the COVID pandemic and employment is already above its pre-pandemic level. A highly successful vaccination campaign helped limit the impact of the recent wave of infections on hospitalizations and economic activity. Output is expected to return to its pre-pandemic level by the end of 2022. However, there is significant uncertainty around the recovery path related to the evolution of the pandemic and the duration of global supply bottlenecks. The pace of absorption and the effectiveness of use of Next Generation EU (NGEU) funds will also affect growth in the coming years. In the near term, the key policy challenge is to continue to provide targeted pandemic support while facilitating resource reallocation and a transformation to a greener and more inclusive economy.

The pandemic is inflicting much suffering, which has been met with swift, substantial, and well-coordinated policy responses. The anti-crisis measures have helped preserve jobs, provide liquidity to companies and income support to the vulnerable groups. They averted a larger decline in output and kept unemployment under control. After contracting by 5.5 percent in 2020, real GDP is projected to grow by 3.9 percent in 2021 and 4.5 percent in 2022, as vaccinations help achieve herd immunity. However, risks to the outlook are large and tilted to the downside, given the epidemiological situation.

Malawi, a fragile state with one of the highest incidences of poverty, food insecurity and frequent weather-related shocks, has been severely affected by the pandemic. There are signs of gradual recovery and daily COVID-19 positive cases remain relatively low: real GDP growth in 2021 is projected to pick up to 2.2 percent from 0.9 percent in 2020 helped by a good harvest. However, inflation is expected to increase to 9 percent in 2021 from 8.6 percent in 2020, driven by increases in prices of fuel, fertilizer and food, leaving real per capita growth in the negative region.

Andorra, the IMF’s newest member since October 2020, participated in its first Article IV consultation with a commitment to further enhance transparency. Tourism and banking-related services dominate economic activity in the euroized economy. The country enjoys long-standing political stability, a good track-record of fiscal discipline, a gender-balanced work force, and internationally competitive ski resorts. The authorities are managing the pandemic well with universal testing and expanded hospital capacity that kept fatality rates very low despite high case-loads. The testing strategy helped Andorra implement more targeted internal restrictions than in neighboring countries. At the same time, emergency fiscal measures stabilized real incomes and supported firms.

Two years after the pandemic, the Spanish economy is facing new headwinds from Russia’s invasion of Ukraine. Activity has been resilient so far, supported by a strong rebound in tourism and other services and timely policy support measures. However, elevated global energy and food prices, lower trading partners’ demand, deteriorating consumer and business confidence, and rising interest rates have slowed the recovery of output. Growth is projected to moderate to 1.1 percent in 2023. Risks to the outlook include tighter-than-expected financial conditions, weaker global demand, and further increases in European energy prices.

In 2020, the COVID-19 pandemic caused by far the largest shock to European economies since World War II. Yet, astonishingly, the EU unemployment rate had already declined to its pre-crisis level by 2021Q3, and in some countries the labor force participation rate is at a record high. This paper documents that the widespread use of job retention schemes has played an essential role in mitigating the pandemic’s impact on labor markets and thereby facilitating the restart of European economies after the initial lockdowns.

Germany’s economy contracted by just under 5 percent in 2020, outperforming most European peers. But renewed waves of infections and associated lockdowns caused economic activity to plunge again in the first quarter of this year. While the pace of mass vaccination has picked up and the economy has started to reopen, the recovery path is beset with risks, particularly with respect to the progress of the pandemic and supply shortages in major industries. The authorities have maintained appropriately accommodative fiscal and financial policies, and most measures supporting households and firms have been extended through 2021.