The sectoral impact of the COVID-19 crisis : an unprecedented & atypical crisis.
Date: 2022-01-11
Institutions: Directorate-General for Economic and Financial Affairs
Subjects: coronavirus disease, digitisation, economic activity, economic consequence, economic recession, economic recovery, economic transition, epidemic, sustainable development, value chain

ISSN 2443-8030 (online)

The Sectoral Impact 
of the COVID-19 Crisis:
An Unprecedented 
& Atypical Crisis

Erik Canton, Federica Colasanti, Jorge 
Durán, Maria Garrone, Alexandr Hobza, 
Wouter Simons and Anneleen Vandeplas

ECONOMIC BRIEF 069 | DECEMBER 2021

EUROPEAN ECONOMY

EUROPEAN 
ECONOMY

Economic and 
Financial Affairs

European Economy Economic Briefs are written by the staff of the European Commission’s Directorate-
General for Economic and Financial Affairs to inform discussion on economic policy and to stimulate debate. 

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Luxembourg: Publications Office of the European Union, 2021 

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CREDIT 
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European Commission 

Directorate-General for Economic and Financial Affairs 

The Sectoral Impact of the COVID-19 Crisis 
An Unprecedented and Atypical Crisis 

By Erik Canton, Federica Colasanti, Jorge Durán, Maria Garrone,          
Alexandr Hobza, Wouter Simons and Anneleen Vandeplas 

Summary 

The  COVID-19  pandemic  has  triggered  the  largest  and  most  abrupt  contraction  in  economic  activity  in 
recent European history. This brief discusses the sectoral impact of the pandemic. Partly as a result of the 
nature  of  the  containment  measures,  contact-intensive  services  have  suffered  disproportionally.  Abrupt 
demand shifts and disruptions in global value chains have also affected sectors differently. The prospects 
for a quick and strong recovery are good but differ across sectors, calling in some cases for a reallocation of 
resources  within  and  possibly  across  sectors.  The  pandemic  will  also  accelerate  existing  trends  such  as 
digitalisation,  the  green  transition,  and  changes  in  global  value  chains.  Appropriate  policy  responses  are 
needed to ensure these transitions are sustainable and inclusive.  

Acknowledgements: This paper originates in a note presented at the Economic Policy Committee and 
later at the Eurogroup. It has benefited from comments and suggestions from many colleagues. We wish to 
thank in particular Elizaveta Archanskaia, Leonor Coutinho, Plamen Nikolov, Rafal Raciborski, Alessandro 
Turini, and Stefan Zeugner for their excellent comments and suggestions. 

Contact:  Jorge  Durán,  email:  jorge.duran-laguna@ec.europa.eu;  Maria  Garrone,  email:  maria.garrone 
@ec.europa.eu.  European  Commission,  Directorate-General  for  Economic  and  Financial  Affairs, 
Economics of Structural Reforms and Investment.  

EUROPEAN ECONOMY                                                                                          Economic Brief 069 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

Introduction 

The COVID-19 pandemic and the measures taken to 
contain it have triggered the largest and most abrupt 
drop  in  economic  activity  in  recent  European 
history.  After  an  initial  contraction  that  exceeded 
11% in 2020Q2, there was a strong rebound (+12%) 
in  2020Q3,  after  which  the  EU  economy  slightly 
contracted  again.  It  is  projected  to  keep  expanding 
achieving  a  growth  rate  of  5%,  4.3%  and  2.5%  in 
2021,  2022  and  2023  respectively.1  The  impact  of 
the  pandemic  has  varied  dramatically  across 
sectors.2 Contact-intensive services, such as tourism, 
have  suffered  disproportionally,  and  continue  to 
show  much 
levels.  Services 
facilitating  non-contact  activities,  like  ICT  support, 
were  quick  to  recover.  Sectors  not  directly  targeted 
by  containment  measures  after  the  initial  broad-
and 
based 
construction)  were 
by 
disturbances  in  global  value  chains  or  drops  and 
shifts  in  demand,  but  have  by  mid-2021  almost 
reached their pre-crisis activity levels again. 

(e.g.  manufacturing 
indirectly 

lower  activity 

lockdowns 

affected 

the  pandemic 

The prospects for a quick and strong recovery differ 
across sectors. As was observed in the third quarter 
of  2020,  demand  can  quickly  rebound  even  in  the 
most  affected  sectors  once 
is 
contained.  Nonetheless,  the  sheer  size  and  the 
persistence  of  the  shock  is  likely  to  spur  business 
failures  and  a  decrease  in  employment  in  the  most 
affected  sectors.3  The  crisis  is  likely  to  cause  a 
reallocation  of  resources  within,  and  possibly  also 
across  sectors.  The  crisis  has  also  intensified  trends 
that  were  already  underway  before  the  lockdown, 
and  some  sectors  are  better  placed  to  benefit  from 
them  than  others.  For  instance,  the  pandemic  has 
flexible 
forced  companies 
workplace  models  and  accelerated 
the  digital 
transformation  with  permanent  impacts  in  sectors 
such as retail.  

to  develop  more 

This  brief  discusses  the  sectoral  impact  of  the 
COVID-19  crisis,  the  different  recovery  prospects 
across sectors, and the potential policy implications. 
The exceptional nature of this crisis has the potential 
to disrupt or enhance long-run sectoral trends. Given 
the high degree of uncertainty, the analysis is largely 
speculative.  It  examines  the  short-term  impact  of 
COVID-19  by  inspecting  economic  performance  at 
sectoral  level  in  2020  and  2021,  based  on  available 
data  and  tentative  projections.  It  then  discusses  the 
potential  long-term  sectoral  effects  of  the  pandemic 
through  its  impact  on  the  most  important  trends: 
digitalisation,  the  green  transition  and  changes  in 

2 

global  value  chains.  To  this  purpose,  it  draws  on 
views  of  sectoral  professional  associations  and 
business  consultants.  Finally,  the  brief  points  to 
relevant implications for policy. 

An atypical sectoral recession 

A dramatic and uneven contraction of 
economic activity 

The outbreak of the pandemic has had a huge impact 
on  a  vast  majority  of  sectors,  particularly  services.4 
The  most  affected  sectors  were  personal  contact-
intensive  services  such  as 
retail,  hospitality, 
transport,  arts  and  entertainment,  and  some  other 
service  activities  (personal  services,  household 
activities, etc.). At the height of the first wave in the 
second  quarter  of  2020,  economic  activity  in  these 
sectors was 25% below the pre-COVID-19 level (see 
Graph  1).  Sectors  that  require  less  physical  contact 
with  customers  or  between  workers  were  less 
affected. Nevertheless, industry contracted by a still 
substantial  17%  and  construction  by  13%.  Services 
with high-skilled workers and high scope for remote 
work  like  ICT,  finance,  and  real  estate  were  more 
moderately affected, and contracted by less than 5%.  

The  pattern  of  the  sectoral  reaction  to  aggregate 
changes  has  been  very  different 
from  past 
recessions.  In  past  recessions,  some  of  the  hardest 
hit  sectors  mentioned  above  turned  out  to  be 
relatively insensitive to the economic cycle. That is, 
changes  in  GDP  induced  smaller  changes  in  value 
added  in  these  sectors  (sectors  with  coefficients 
smaller than one in Graph 2). For instance, the 12% 
contraction of total activity in the second quarter of 
2020  would  have  induced  a  mere  5%  contraction 
during the financial crisis in arts, entertainment and 
recreation, and other service activities (R-U) (Graph 
2).  Instead,  the  sector  contracted  by  a  staggering 
24%,  i.e.  four  times  deeper  than  the  equivalent 
during  the  financial  crisis.  At  the  other  extreme, 
sectors  like  information,  communication  or  banking 
have  evolved  pro-cyclically  in  the  past  but  reacted 
much  less  during  the  current  crisis.  In  the  case  of 
communication (J), this observation is clearly linked 
to  the  lockdown  effect  on  the  demand  for  these 
services. For banking (K), the drop in some types of 
activities could have been compensated by the need 
for  financial  services  by  firms  and  households  in 
financial  stress,  besides  the  ability  of  the  sector  to 
provide  services  without  physical  interaction  with 
clients. 

 
 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

Graph 1: Changes in sectoral value added, employment, and hours worked, EU27 average 

Industry

Construction

Trade & tourism

IT

Finance and Insurance

0
0
1

0
8

0
6

0
0
1

0
8

0
6

Real estate

0
0
1

0
8

0
6

0
0
1

0
8

0
6

Prof. & business serv.

0
0
1

0
8

0
6

0
0
1

0
8

0
6

Public sector

0
0
1

0
8

0
6

0
0
1

0
8

0
6

Arts & other services

0
0
1

0
8

0
6

0
0
1

0
8

0
6

TOTAL

2
0
1
9
q
4

2
0
2
0
q
1

2
0
2
0
q
2

2
0
2
0
q
3

2
0
2
0
q
4

2
0
2
1
q
1

2
0
2
1
q
2

2
0
1
9
q
4

2
0
2
0
q
1

2
0
2
0
q
2

2
0
2
0
q
3

2
0
2
0
q
4

2
0
2
1
q
1

2
0
2
1
q
2

2
0
1
9
q
4

2
0
2
0
q
1

2
0
2
0
q
2

2
0
2
0
q
3

2
0
2
0
q
4

2
0
2
1
q
1

2
0
2
1
q
2

2
0
1
9
q
4

2
0
2
0
q
1

2
0
2
0
q
2

2
0
2
0
q
3

2
0
2
0
q
4

2
0
2
1
q
1

2
0
2
1
q
2

2
0
1
9
q
4

2
0
2
0
q
1

2
0
2
0
q
2

2
0
2
0
q
3

2
0
2
0
q
4

2
0
2
1
q
1

2
0
2
1
q
2

Value added

Employment (hours worked)

Employment (persons)

Note:  Performance  is  expressed  as  an  index  (2019q4=100).  Data  are  seasonally  and  calendar  adjusted.  Value  added  is 
calculated based on gross value added in chain linked volumes (index 2015=100). Employment, measured in hours worked 
and  in  persons,  are  based  on  domestic  concepts.  Following  the  NACE  code  nomenclature,  considered  sectors  are 
respectively:  Industry  (B-E);  Construction  (F);  Trade  and  tourism  (G-I);  IT  (J);  Finance  and  insurance  (K);  Real  estate  (L); 
Professional and business services (M-N); Public sector (O-Q); Arts, entertainment and other services (R-U).   

Source: Own calculations based on quarterly national accounts data (Eurostat). 

Graph 2: Sectoral sensitivity along the business cycle, selected periods 

Note:  The  chart  reports  the  sensitivity  of  growth  of  sectoral  real  value  added  relative  to  changes  in  total  value  added.  A 
  in  the 
value  greater  than  one  means  that  the  sector  is  more  volatile  than  average.  In  particular,  it  displays  the  slope 
regression 

 is the growth rate of sectoral value added and 

 the growth rate of GVA. 

 where 

𝛽𝛽̂𝑖𝑖

Source: Eurostat and own calculations. 
𝑔𝑔𝑖𝑖,𝑡𝑡 = 𝛼𝛼�𝑖𝑖 + 𝛽𝛽̂𝑖𝑖𝑔𝑔𝑡𝑡 + 𝜀𝜀𝑖𝑖,𝑡𝑡
𝑔𝑔𝑖𝑖,𝑡𝑡

𝑔𝑔𝑡𝑡

3 

 
 
 
 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

to 

supply-side 

restrictions) 

Over  the  course  of  2020,  the  evolution  of  the 
economic  contraction  varied  even  at  the  level  of 
subsectors (Graph 3). At the height of the first wave, 
reduced demand for e.g. textiles and automobiles (in 
caused 
addition 
reductions  in  turnover  of  more  than  50%  in  these 
manufacturing industries. After the first wave, most 
manufacturing sectors rebounded quickly, as pent-up 
demand  was  unleashed.  Automotive  sales,  for 
instance, exceeded pre-crisis levels by the autumn of 
2020.  The  recovery  was  less  pronounced  in  the 
service  sectors,  in  particular  among  the  hardest  hit 
accommodation and food services. 

Graph 3: Turnover in selected sectors, EU average 

Note: EU turnover-weighted average for all countries 
except CY and MT. 

Source: Archanskaia at al. (2021). 

The  resurgence  of  the  pandemic  at  the  end  of  2020 
and  throughout  the  first  half  of  2021  had  a  more 
muted  impact  on  most  sectors.  Businesses  and 
workers  adjusted  to  the  pandemic  after  the  first 
wave,  as  improved  working  conditions  (at  the 
workplace  and  at  home)  helped 
to  preserve 
economic activity in most sectors.5 Indeed, while the 
epidemiological  situation  and  lockdown  measures 
since  the  autumn  of  2020  have  been  of  a  similar 
nature  as  in  spring,  the  economic  contraction  was 
less pronounced. This suggests that, in most sectors, 
both companies and consumers were better prepared 

4 

at  the  onset  of  the  subsequent  waves,  which  helped 
to  largely  preserve  economic  activity.  Yet,  the 
hospitality sector (I) continued to experience serious 
disturbances  to  its  activity  throughout  the  first  half 
of  2021  due  to  the  restrictions  on  gatherings  and 
international  travel.  The  sector  is  estimated  to  take 
longer to recover, barely reaching pre-crisis turnover 
levels by the end of 2021 (Archanskaia et al., 2021). 

A contraction of hours but not jobs 

The impact on labour has been cushioned by policy 
support measures, notably short-time work schemes. 
At the height of the crisis (2020Q2), the contractions 
in  hours  worked  across  sectors  largely  mirrored  the 
contraction  in  economic  activity.  Fortunately,  the 
impact on jobs has been more muted. The reason is 
that  extensive  public  support  measures  have  been 
targeted  at  preserving  jobs.  The  EU  has  supported 
these  schemes  via 
to  mitigate 
Unemployment  Risks  in  an  Emergency  (SURE) 
providing financial assistance up to EUR 100 billion 
in  the  form  of  loans  from  the  EU  to  affected 
Member States to address sudden increases in public 
expenditure  for  the  preservation  of  employment. 
Still, between 2019-Q4 and 2020-Q2, around 3% of 
employment  or  almost  six  million  jobs  were  lost  in 
the  EU. By  end  of  2021-Q2,  employment  remained 
around 2 million below its 2019-Q4 level. 

the  Support 

This  average  pattern  masks  important  differences 
across  sectors.  Graph  4  shows  how  certain  job 
characteristics  have  been  instrumental  in  explaining 
the  initial  impact  of  the  pandemic  on  activity  by 
sector. Notably, the impact of the pandemic has been 
mitigated in sectors where contact is easier to avoid 
or teleworking is an alternative to face-to-face work 
(see Graph 4). In general, workers in sectors such as 
finance  and  insurance  (K)  and  IT  (J)  can  easily 
telework. This is much less the case in industry (B-
E)  or  construction  (F),  and  even  more  difficult  in 
trade,  transport  and  accommodation  (G-I)  and  arts, 
entertainment  and  recreation  (R-U).  The  last  two 
sectors  (G-I  and  R-U)  are  also  particularly  contact-
intensive,  which  is  why  they  were  completely  shut 
down  as  part  of  the  early  containment  measures. 
While  the  public  sector  (O-Q)  also  includes  a  high 
share  of  contact-intensive  occupations  (such  as  in 
health or education), these were often considered as 
“essential” and therefore not (or only partially) shut 
down  during  the  pandemic.  As  a  result,  the  impact 
on  added  value  was  much  less  pronounced  than  in 
other sectors (see also Fana et al., 2020). 

 
 
 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

The observed  sectoral  contractions  in  hours  worked 
were  very  much  in  line  with  the  declines  in 
economic activity. Large reductions in hours worked 
were  observed  particularly 
in  contact-intensive 
services  (hospitality,  arts  and  entertainment:  around 
-25%  at  the  trough)  but  also  in  professional  and 
business  support  services,  industry  and  construction 
(around -15%) (see again Graph 1).  

Graph 4: Factors driving the contraction in sectoral value 
added, EU average 

(a) % of teleworkable occupations 

(b) % of occupations requiring physical proximity 

Note:  Impact  is  calculated  as  in  Graph  1.  Occupational 
variables  are  calculated  combining  LFS  data  at  ISCO  2-
digit level with O*NET-based information on the ability to 
telework  and  physical  proximity  requirements  at  the 
occupational  level.  For  the  linear  fit  (red  lines),  the 
agricultural  sector  is  excluded  in  panel  (a)  for  being  an 
outlier. 

Source: Eurostat, O*NET and own calculations. 

Reductions in employment in terms of persons were 
more muted, but largely falling on the same sectors. 
At the same time, some sectors saw an exceptionally 
weak response of employment compared to the drop 
in value added and/or working hours. This may point 
at  differences  in  job  security,  stemming  either  from 
specific  employment  protection  regulations  (e.g.  in 

5 

the public sector) or from the high-skilled nature of 
the  jobs  in  the  sector  (e.g.  in  the  finance  and 
insurance  sector)  which  makes  a 
temporary 
reduction  of  employment  contracts  more  costly  in 
terms of firm-specific human capital and recruitment 
costs. In agriculture, on the other hand, the mobility 
restrictions  that  hindered  the  recruitment  of  foreign 
labour  may 
explaining  why 
employment  was  more  strongly  affected  than  value 
added (which was hardly impacted). 

contribute 

to 

The  impact  of  the  pandemic  has  also  been  uneven 
across types of workers. Job losses have been more 
significant  for  younger  workers  and  low-skilled 
workers,  who  were  already  in  more  fragile  labour 
market  positions  before 
the  pandemic.  Young 
workers  are  more  likely  to  work  in  hospitality  and 
retail. Young and low-skilled workers are also more 
likely  to  work  on  temporary  contracts,  and  be 
affected  by  the  broad  halt  in  recruitment  during  the 
pandemic  (see  also  Fana  et  al.,  2020).  Contrary  to 
what was feared in the early stages of the pandemic, 
job  losses  in  the  EU  have  been  slightly  more 
frequent  among  male  than  among  female  workers. 
the 
Nevertheless,  early  research  suggests 
increased  burden  of  childcare 
from 
widespread  school  closures  has  disproportionally 
fallen  on  women,  which  may  have  affected  their 
ability to perform at work and their career prospects 
going forward.  

resulting 

that 

Effects on households and firms 

or 

outdoor 

activities 

The  crisis  has  affected  both  the  level  and  the 
composition of consumption. Containment measures 
induced directly and indirectly deep shifts in demand 
across sectors. Demand for some goods and services 
declined  (e.g.  visits  to  the  cinema  or  restaurants  or 
trips abroad) while for others it increased (e.g. office 
home 
equipment, 
entertainment).  In  some  cases,  the  sudden  shift  in 
demand caused supply shortages (see the discussion 
below).  Added  to  this,  containment  measures  and 
general  uncertainty  about  the  evolution  of  the 
pandemic  took  a  direct  toll  on  the  income  of  many 
households  and  and 
in 
precautionary  savings.  The  household  saving  rate 
spiked  to  a  staggering  24%  of  gross  disposable 
income in 2020-Q2 in the EU. On an annual basis, it 
increased to more than 18.5%, up from its long-term 
average of around 12%.6 This impact on the level of 
demand  was  also  felt  in  sectors  whose  production 
was not directly impacted by containment measures. 

induced  an 

increase 

 
 
 
 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

Given  that  the  pandemic  has  resulted  in  more 
employment  disruptions  and  job  losses  among 
vulnerable  workers,  we  would  expect  poorer 
households to have been impacted disproportionally 
by  job  and  income  losses.  This  would  affect  the 
composition  of  demand,  with  a  disproportionate 
impact  on  non-essential  goods  and  services,  as 
poorer  households  tend  to  spend  relatively  more  on 
essential items such as food, medicines and housing. 

the  financial 

From  the  supply  side,  the  pandemic  and  the 
measures  to  contain  it  are  having  an  important 
impact  on  the  financial  health  of  corporations 
although  differing  across  sectors.  Without  policy 
support, 
troubles  widely  felt  by 
entrepreneurs  could  have  triggered  a  wave  of 
bankruptcies  causing  lasting  economic  and  social 
damage.  Simulations  show  the  extent  of  liquidity 
problems  faced  by  firms  since  the  outbreak  of  the 
pandemic  (see  Connell-Garcia  and  Ho  (2020)  and 
Archanskaia  et  al.,  2021).  They  show  that  almost 
60%  of  firms  (with  10+  employees)  have  incurred 
losses over 2020. More than half of them, or 34% of 
all  firms,  did  not  have  sufficient  cash  buffers at  the 
beginning  of  2020  to  cover  these  losses,  which 
makes  them  particularly  vulnerable.  Moreover,  a 
high  share  of  illiquid  firms  had  been  financially 
vulnerable  before  the  COVID-19  crisis,  which 
further  limits  their  access  to  external  sources  of 
finance.  To  have  an  idea  of  the  sheer  size  of  the 
potential  disruption  at  the  firm-level  without  any 
support,  in  accommodation  and  food  services  97% 
of all firms are estimated to have incurred net losses 
over 2020. At the same time, close to 80% of firms 
in  the  sector  would  have  depleted  the  cash  buffers 
they held at the beginning of the year. 

Policy  support  at  both  national  and  EU  level  has 
prevented large-scale business failures or an upsurge 
in  unemployment  so  far.  Providing  broad-based 
support  to  viable  businesses  across  all  sectors  and 
keeping  workers  attached  to  their  firms  has  been 
vital to prevent irreversible losses in know-how and 
productivity,  and  hence 
to  preserve  Europe’s 
competiveness. 

On the way forward, a key policy challenge will be 
to gradually withdraw the existing support measures 
and/or to better target them. This will be crucial not 
only to limit additional increases in public debt, but 
also  to  allow  for  the  reallocation  of  resources 
towards  more  productive  uses  and  avoid 
the 
"zombification"  of  failing  businesses.  Whilst  it  is 
sensible to link the phasing out of support measures 
to  the  lifting  of  containment  measures.  In  some 
sectors  (such  as  tourism),  demand  will  take  time  to 

6 

recover.  Not  least  because  of  fear  of  the  disease, 
even after containment measures are lifted. In some 
other sectors (such as business travel), demand may 
not  recover  fully,  even  after  epidemic  risks  have 
disappeared 

Medium to long-term sectoral 
perspectives – Acting on existing 
trends 

The  effects  of  the  COVID-19  crisis  are  likely  to 
manifest  through  different  channels.  The  economic 
hardship  and  resulting  business  failures  could  spur 
important reallocation of resources within as well as 
across sectors. The pace of the recovery will depend 
mostly  on  health  risks,  containment  measures, 
government  support, 
the  speed  of  vaccination 
campaigns, the ability of businesses to meet demand, 
and consumer confidence (OECD, 2020a). However, 
the  recovery  may  be  faster  than  expected  given  the 
commitment  of  Member  States  and  the  EU  to 
actively  support  the  recovery.  The  general  escape 
clause  of  the  Stability  and  Growth  Pact  has  been 
activated,  giving  slack  to  governments  to  spend  on 
support  and  the  recovery,  and  NextGenerationEU 
stimulates  directly  the  economy  via  traditional 
means like InvestEU but also via the novel Recovery 
and Resilience Facility (RRF), a package to support 
Member States to the tune of EUR 723.8 billion. 

Faster  or  slower,  industry  associations  and  business 
consultants expect the recovery to be uneven across 
sectors,  with  some  recovering  relatively  swiftly  to 
normal  levels  of  activity  and  others  languishing  for 
some  years  to  come.  For  instance,  the  tourism 
industry  is  expected  to  recover  to  pre-COVID-19 
levels  between  2022  (domestic  travels)  and  2024 
(international  travel)  (ETC,  2021).  Still,  business 
travel is unlikely to recover completely, and even in 
the  absence  of  permanent  behavioural  changes,  it 
would not be expected to recover before 2024 (ETC, 
2020a). In the retail sector, activity may take around 
five  years  to  recover  to  pre-COVID-19  levels  and 
digitalisation  may  entail  large  reallocations  within 
the  sector  (for  the  US,  see  KPGM,  2020).  Large 
firms may recover faster than small firms (Dua et al., 
2020). 

Second,  the  crisis  can  interact  with  ongoing  trends, 
such  as  digitalisation,  the  green  transition,  and 
changes  in  global  value  chains.  The  pandemic  can 
strengthen some of these trends, and hence magnify 
or bring forward their effects. Table A1 in the annex 
below summarises the main channels through which 

 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

the  pandemic  affects  these  three  secular  trends. 
Table  A2  includes  some  sectoral  disaggregation 
according  to  industry  associations,  consultants,  and 
other experts. 

The digital transition: A potential silver 
lining of the COVID-19 crisis 

the 

The  strong  uptake  of  digital  technologies  has 
become one of the salient features of the COVID-19 
crisis.  These  technologies  have  been  crucial  in 
mitigating 
impact  of  physical  distancing 
measures  in  a  number  of  sectors.  The  crisis  has 
substantially  sped  up  digital  uptake  and  raised  the 
demand  for  digital  technologies,  e.g.  teleworking, 
videoconferencing,  online  schooling,  automation, 
and  home 
data 
entertainment.  Some  of  these  phenomena  may  be 
temporary,  like online schooling, but others such as 
an increased uptake of remote working methods are 
likely  to  stay.  Barrero  et  al.  (2021)  have  estimated 
that  20%  of  working  hours  will  shift  permanently 
online.  

e-commerce, 

analytics 

and 

to 

produce 

substantial 

The  digital  uptake  boosted  by  Covid-19  has  the 
potential 
sector 
transformations.  The  ICT  industry  is  expected  to 
reinforce  its  key  role  in  the  economy  and  emerge 
stronger. Other sectors, like wholesale and retail, are 
likely to undergo important restructuring and supply 
chain 
the 
increased adoption of e-commerce and omnichannel 
marketing strategies.7 

reorganisation, 

including 

through 

transition  can 
The  acceleration  of 
the  digital 
generate  significant  productivity 
improvements, 
although some sectors are likely to benefit more than 
others.  For  example,  manufacturing  industries  can 
gain  substantially  from  digitalisation  directly  and 
indirectly:  productivity  can  increase  via  automation 
the  production  process  but  also  because 
of 
digitalisation  may 
ongoing 
facilitate 
servicification  and  the  outreach  to  international 
markets.8  

the 

However,  the  productivity  effects  of  the  digital 
transformation will take time to materialise. Despite 
the  ongoing  digitalisation,  labour  productivity  has 
stagnated  over  the  past  decades.  While  this  may 
seem  paradoxical,  it  also  reflects  the  fact  that  the 
links between the adoption of digital technology and 
productivity are complex. In particular, this is due to 
the need for complementary investments, such as the 
reorganisation of production structures, development 
of  new  business  models,  skills  for  the  digital 
economy,  as  well  as  complementary  policies 

7 

promoting competition and an efficient allocation of 
resources in the economy (see Gal et al., 2019). 

effects, 

secondary  negative 

Moreover,  in  specific  sectors,  the  digital  transition 
e.g. 
can  have 
productivity  growth  may  be  negatively  affected  by 
reduced  agglomeration  effects  due  to  teleworking 
and  de-urbanisation.  This  may  particularly  be  the 
industries  and  knowledge-
case  for  high-tech 
intensive  services.  Agglomeration  economies  are 
indeed  associated  with  the  creation,  diffusion,  and 
accumulation  of  new  knowledge  and  ideas  within 
and  between  industries  (e.g.  Gornig  and  Schiersch, 
2019).  Finally,  in  some  activities  digitalisation  may 
partially  crowd  out  existing  services.  For  instance, 
the  rise  of  home  entertainment  may  go  at  the 
expense  of  other  types  of  arts,  entertainment  and 
recreation  services.  Even  within  narrow  sectoral 
categories, large retail companies may benefit  more 
from  e-commerce,  at  the  expense  of  smaller  brick 
and mortar businesses. 

Opportunities  will  not  come  without  challenges.  A 
faster  digital  transition  can  give  rise  to  policy 
challenges  because  of  the  rise  of  market  power  or 
labour  market  mismatches.  Digital 
potential 
technologies,  characterised  by  low  reproduction 
costs  and  strong  network  effects,  are  prone  to 
winner-takes-most  dynamics,  potentially  lowering 
competition  in  some  markets.  In  the  wholesale  and 
retail  sector,  the  ability  to  invest  in  digital  tools  is 
expected  to  increase  the  market  power  of  major 
firms—although  omnichannel  marketing 
retail 
strategies  could  still  help  the  offline  retail  to 
compete  with  pure  e-commerce  players.  The 
increased  adoption  of  automation  technology  and 
teleworking  might  also  further  skew  labour  market 
demand 
high-wage 
employment  with  less  jobs  at  the  lower-end  of  the 
skills and wage distribution, especially in the service 
sector. Skill gaps and labour market mismatches can 
ensue  in  the  absence  of  effective  reskilling  and 
upskilling programmes to support people moving to 
other  sectors  and  occupations  (e.g.  away  from 
routine  tasks  in  manufacturing).  Such  concentration 
and  labour  market  mismatches  could  also  generate 
policy  challenges  with  respect  to  income  dispersion 
and regional inequalities. These dynamics underline 
the  need  to  address  remaining  gaps  in  skills 
(including  digital  skills)  among  EU  citizens  and 
digital infrastructure. 

high-skilled, 

towards 

 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

Green transition: A transformative impact 
on many sectors 

The COVID-19 crisis has acted as an accelerator for 
the  political  support  to  the  green  transition,  which 
was  already  high  on  the  EU  agenda  with  the 
European  Green  Deal.  Some  have  argued  that  the 
pandemic  increased  citizens’  awareness  on  the 
importance  of  climate  action  policies  (Kachaner  et 
al., 2020). The crisis may have a negative impact on 
low-carbon  investment  in  the  short-term  because  of 
the  uncertainty  and  reduced  financial  resources. 
However,  strong  and  decisive  policy  action  by  the 
Union and Member States aims at counteracting this, 
and  even  accelerating  the  green  transition.  With  a 
view  to  deliver  on  the  UN’s  2030  Agenda  for 
Sustainable  Development  and  on  the  Paris  climate 
agreement,  the  Commission  recently  committed  to 
an ambitious climate target to set Europe on the path 
to  becoming  climate  neutral  by  2050  –  namely,  to 
cut  greenhouse  gas  emissions  by  at  least  55%  by 
2030.  It  also  committed  to  implement  the  Green 
Deal  roadmap  as  a  new  growth  strategy  "to  build  a 
fair  Europe" 
sustainable  and 
more 
(European Commission, 2020c).  

resilient, 

Achieving  the  agreed  climate  and  environmental 
EU-level 
require 
targets  and  objectives  will 
significant changes in all sectors, also depending on 
the  availability  of  mature  technology.  It  will  also 
necessitate 
the  development  of  sector-specific 
pathways for these transitions. Changes in consumer 
behaviour  will  also  matter  to  achieve  climate-
neutrality  and  the  environmental  ambition  of  the 
Green  Deal.  Greener  consumption  practices  are 
estimated  to  reduce  the  EU  CO2  footprint  by  25%, 
even though this will also depend on policy support 
(Moran  et  al.,  2020).  For  example,  a  stable 
regulatory 
in 
infrastructure  along  with 
to  support 
production and purchase of electric vehicles will be 
crucial to accelerate their market penetration. 

and 
incentives 

framework 

investment 

Furthermore,  the  green  transition,  based  on  a 
stronger  reliance  on  clean  and  renewable  energy, 
higher demand for energy efficiency and a faster rate 
of  building  renovation,  would  particularly  affect 
energy,  transport,  construction  and  manufacturing. 
For  the  construction  sector,  for  example,  restoring 
confidence  of  property  owners  and 
investors, 
tackling  skills  mismatches,  and  providing  financial 
and economic incentives will be crucial in the short-
term  to  accelerate  investment  in  deep  renovation. 
However,  in  the  long-term,  commercial  real  estate 
might be heavily affected as a result of teleworking. 

8 

In  addition,  sustainable  consumption  could  be 
boosted  thanks  to  shifts  in  consumer  preferences 
towards  energy  and  resource  efficiency,  supported 
by  financial  incentives  from  the  government.  The 
green transition may boost low- and medium-skilled 
employment (e.g. for the renovation of buildings and 
the  production  of  renewable  energy),  counteracting 
some  of  the  negative  impacts  on  demand  for  lower 
skilled  workers  and  social  cohesion  by  the  digital 
transition.  At  the  same  time,  for  many  workers  the 
transition  would  require  some  reskilling  in  order  to 
be  able  to  adopt  alternative  production  methods  or 
shift to other sectors and occupations. 

Changes in global value chains 

The  outbreak  of  the  COVID-19  crisis  severely 
disrupted  production  and  trade.  The  lockdowns 
closed  many  plants,  and  the  disturbances  to  trade 
routes  still  reverberate 
today  (mid-2021)  with 
shipping  costs  at  an  all-time  high.  There  were 
shortages  of  masks  and  other  protective  equipment, 
and  of  other  key  items  required  to  treat  Covid-19 
patients  (e.g.  ventilators  and  pharmaceuticals). 
Moreover,  there  were  problems  with  the  supply  of 
strategic  items  used  in  key  industrial  supply  chains 
such  as  the  automotive  or  the  chemical  industry 
(Barbieri, 2020).   

In some globalised sectors, supply is still struggling 
to  meet  demand.  One 
illustration  concerns 
microprocessors,  which  have  been  in  short  supply 
since 2020 and are expected to remain so for a few 
years  to  come.  The  shortage  of  microprocessors  is 
due to the increase in teleworking and consumption 
of  home  entertainment  with  the  ensuing  increase  in 
demand  for  home  electronics.  Initially  the  shortage 
was due to a temporary delay in supplies as factories 
shut  down  because  of  the  lockdowns.  Relatively 
soon  production  went  back  to  normal,  but  then  a 
surge  in  demand  due  to  changing  habits  during  the 
pandemic  and  other  factors  increased  demand  (The 
Guardian, 2021, Burkacky et al., 2021).  

Another example concerns the shortage of bicycles. 
The  closure  of  bars  and  restaurants  has  increased 
outdoor activities and created a shortage of bicycles 
because manufacturers have not been able to follow 
the spike in demand. The shortage is expected to last 
until  the  end  of  2022  (Annis,  2020).  In  other 
instances, 
quickly 
compensated  by  the  swift  rebuilding  of  capacity  in 
the home market, or the swift resumption of imports 
from the rest of the world (Norberg, 2021).   

disruptions  were 

supply 

 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

reshoring 

sector)  were 

The observed shortages have further fuelled debates 
on  the  possible  reshoring  of  offshore  production. 
Already before the crisis, some firms (mostly in the 
manufacturing 
some 
production  activities  back  to  Europe  or  North-
America.  This  happened  either  as  a  deliberate 
strategy  (e.g.  rising  production  costs  in  emerging 
economies,  emerging  global  supply  chain  or 
and 
intellectual  property 
robotisation in the home country), or as a result of a 
perceived  ‘failure’  of  the  offshoring  strategy  (e.g. 
problems  with  quality,  availability  of  raw  materials 
and  local  skilled  workforce)  (Barbieri,  2017;  Lund 
and Steen, 2020).   

risks,  digitalisation 

In  some  countries,  among  which  a  few  major  trade 
partners of the EU, there was already some evidence 
of  a  secular  trend  towards  a  declining  reliance  on 
foreign  trade.  The  global  share  of  the  overall  value 
of trade flows of intermediate inputs at any stage of 
the  value  chain  over  final  output  has  declined 
slightly  since  2011  (OECD,  2020b).  In  the  EU, 
however,  exports  of  intermediate  goods  as  share  of 
GDP  have  continued  to  grow  since  the  global 
financial  crisis,  particularly  within  the  EU  (see 
Darvas, 2020).  

As  the  pandemic  disrupted  global  value  chains,  it 
has  revealed  some  of  Europe’s  dependencies  on  a 
limited  number  of  suppliers  for  certain  important 
goods  and  raw  materials.  In  response,  some  have 
highlighted  the  risks  associated  with  international 
production  and  suggested  to  make  global  value 
chains  more  resilient  by  diversifying  their  supply 
base  and/or  reshoring  some  activities  (OECD, 
2020b; Javorcik, 2020). Also in Europe, discussions 
started  on  the  possible  need  to  reduce  dependency 
on 
certain 
strategically important products.9 

trade  partners 

international 

for 

A  recent  ECB  survey  of  leading  companies  in  the 
euro area shows that in the short term, intentions to 
reshore  remain  scant.  To  better  manage  risks,  some 
companies  may  consider  further  diversifying  their 
supply  chains,  combining 
the  advantages  of 
from 
domestic  supply  with 
offshoring  and  international  trade  (ECB,  2021). 
Similarly,  Maqui  and  Morris  (2021)  find  that  many 
companies  are  not  seeking  to  internalise  more  parts 
of the supply chain. 

the  opportunities 

A  major  reason  for  the  prudence  shown  by  firms 
with  reshoring  is  the  considerable  efficiency  costs 
that such strategy may imply if implemented strictly. 
In the automobile industry, for instance, it would be 
difficult  to  avoid  importing  raw  materials  and 

9 

trillion 

least  $1 

intermediate products from other regions (especially 
for  electric  cars)  (Fechner,  2020).  Similarly,  the 
semiconductor  industry  estimates  that  achieving 
"self-sufficient  local  supply  chains  in  each  (world) 
in 
region  would  require  at 
incremental  upfront  investment  and  result  in  a  35% 
to  65%  overall  increase  in  semiconductor  prices".10 
At the aggregate level, Eppinger et al. (2021) argue 
that the welfare losses of partial reshoring would be 
considerable  while  not  being  effective  in  shielding 
economies  from  foreign  shocks.  Miroudot  (2020) 
underlines  that  the  key  to  global  value  chain 
resilience is not the location of production, but rather 
the  global  ability  to  scale  up  production  when 
required.  In  case  of  an  economic  shock,  access  to 
international  production  networks  can  actually  also 
help  firms  and  countries  recover  faster  (OECD, 
2020b).  

like  chips,  artificial 

Still,  autonomy  in  the  production  of    an  input  of 
critical  importance  is  also  a  matter  of  geostrategic 
relevance.  For  this  reason,  a  number  of  measures 
have been taken recently by governments to reshore 
the  production  of  semi-conductors.  China  has 
pledged US$ 1.4 tr over six years to secure a lead in 
sectors 
intelligence  and 
autonomous  driving.  South  Korean  companies  are 
committing  US$  450  bn  over  a  decade  on  chip 
research  and  expansion,  while  TSMC  alone  has 
earmarked  US$  100  bn  over  the  next  three  years. 
The  US  will  devote  US$  50  bn 
to  reshore 
semiconductors'  manufacturings  and  has  called  for 
export  controls  to  "protect  U.S.  national  security 
interests  by 
limiting  advanced  semiconductor 
capabilities in countries of concern". In this context 
President  von  der  Leyen  has  announced  a  state-of-
the-art  European  chip  ecosystem  to  ensure  security 
of supply for European firms.11 

in  services 

At the same time, there are several economic, social 
and political developments that could reshape global 
production  processes.  Some  new  technologies,  such 
as  automation  and  additive  manufacturing  (also 
known as 3D printing), have the potential to reduce 
the  need  for  trade  in  some  goods  while  fuelling 
growth 
(McKinsey,  2019). 
trade 
Consumer preferences are shifting towards local and 
sustainable  consumption,  boosting  the  process  of 
regionalisation.  Some  of  the  demand  shifts  caused 
by 
the  COVID-19  crisis  might  become  more 
entrenched.  Changes  in  the  configuration  of  the 
tourism sector, such as traveller preferences towards 
domestic destinations, could be persistent even after 
the  recovery.  This  shift  combined  with  a  wider 
adoption  of  videoconferencing  (as  a  substitute  for 

 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

business travel) could also reduce air transportation. 
On the other hand, some developments may actually 
favour globalisation. For instance, the increased use 
of  digital  means  in  reaction  to  the  COVID-19 
pandemic  has  made  it  easier  to  work  closely  with 
service  providers  and  experts  located  far  away  and 
may  thereby  provide  a  boost  to  offshoring  and 
outsourcing in services. 

Conclusions 

Looking  ahead,  most  sectors  are  expected  to  reach 
pre-crisis activity levels over the next 1-3 years – but 
the pace of recovery will vary across sectors. At the 
same time, the COVID-19 crisis is likely to provoke 
a  reallocation  of  resources  within  sectors,  for 
towards  online 
example  from  brick-and-mortar 
shops,  or  from  holidays  abroad 
to  domestic 
destinations.  

to 

see 

significant  changes 

The  pandemic  has  been  acting  as  a  catalyst  for 
longer term structural changes, such as the green and 
the  digital  transition.  The  acceleration  of  the  digital 
transformation  is  already  being  felt  across  all 
sectors,  but  with  different  impacts  across  sectors: 
some  are  likely  to  expand  (e.g.  ICT),  others  are 
their 
likely 
organisational 
and/or 
production  patterns  (e.g.  manufacturing).  Some  of 
these  changes  may  lead  to  substantive  gains  in 
productivity.  In this respect, the COVID-19 crisis is 
likely  to  potentially  have  a  silver  lining  after  all. 
However,  we  have  also  discussed  how  some 
concerns may arise over concentration and increased 
wage  inequality  and  skill  gaps,  especially  in  the 
services sectors, that call for policy action. 

structure 

retail) 

(e.g. 

in 

As the pandemic has impacted sectors in a different 
way,  in  the  short  run  there  is  a  need  to  promote 
reallocation  of  resources  away  from  sectors  where 
activity  remains  depressed,  towards  sectors  that  are 
growing  and  in  need  of  labour.  Indeed,  in  many 
sectors,  labour  shortages  are  already  emerging.  The 
pandemic  may  speed  up  reallocation  through  an 
increase  in  business  churn  and  firm  restructuring, 
once  support  measures  are  withdrawn.  There 
remains  considerable  uncertainty  around  the  extent 
to  which  this  business  churn  will  occur,  as  for  now 
(2021Q2),  the  overall  rate  of  bankruptcies  remains 
25%  below  pre-crisis  levels  as  a  result  of  policy 
support  measures  that  remain  in  place,  even  if  in 
some  sectors,  notably  accomodation  and  food 
services, bankrupcies have taken up fast. 

can 

facilitate,  where  necessary, 

Policy 
the 
reallocation  of  capital  and  labour  between  sectors. 
For  example,  the  reallocation  of  capital  can  be 
helped through an attractive business environment, a 
modern  public  administration,  effective  corporate 
solvency  regulations  and  fair  and  transparent  tax-
benefit systems. Similarly, the reallocation of labour 
can  be  fostered  by  investing  in  training  to  support 
workers’  professional 
transitions;  modernising 
public  employment  services  to  provide  high-quality 
job  search  assistance,  drawing  on  up-to-date  labour 
market  intelligence;  and  through  effective  labour 
market  institutions  that  are  responsive  to  changing 
labour  market  conditions,  in  line  with  the  recently 
adopted Commission Recommendation for Effective 
Active Support to Employment (EASE).12,13 

The  recovery  instrument  NextGenerationEU,  with 
the RRF as its centrepiece, will help Member States 
undertake crucial reforms and boost investments for 
the green and digital transformations.  

10 

 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

Annex A 

Table A1: Summary of main long-term trends potentially affected by the COVID-19 pandemic 

Digital transition 

Changes on Global Value Chains 

Green transition 

COVID-19 will lead to acceleration 

COVID-19 will have a mixed effect: 

COVID-19 will have a mixed effect: 

• 

“Green behaviour” (changes in 
energy consumption and emission 
reduction) (+) - E.g. domestic 
tourism, teleworking, more local 
consumption, short VCs, demand 
for energy-efficiency at home etc. 

•  De-urbanisation (+/-)  
• 

Low-carbon/green investment (+/-
):  
Economic uncertainty (-) 
Low financial availability (-) 

• 
• 
•  Demand for greening (+) 
• 

Boost from policy action (+) 

Productivity: mixed 

Green costs of reaching the targets → 

BUT mitigation 

Learning by doing (+) 

R&D investments in green tech (+) 

subsidies and tax-credits for green R&D 

investment (+) 

Capital/labour reallocation: from dirty 

to clean; different types of skills 

Distributional effects: risk of job and 

regional disruption → investment needs, 

e.g. in re/up skilling. 

Crucial role of policies in placing green 

transition at the heart of post-Covid19 

recovery reform packages in EU & MS.  

EU aim to world leader in clean energy 

production → net carbon-neutral 

target by 2050 

through: 

• 

Teleworking and telepresence 
(+) 

•  Digital technologies and services 

(+) 
E-commerce (+) 
Automation (+) 

• 
• 
•  Data analytics/processing  (+) 

• 

• 

Shortening GVCs and ‘strategic 
autonomy’ (-) 
Reshoring (mostly intermediates) 
and regionalisation (-) 
•  Offshoring of services  (+) 

(De) globalisation effect on 

productivity: negative  

Lower competition (-) 

Productivity: potential efficiency gains  

Lower exposure to foreign technology 

Automation and data 

analytics/processing (+) 

(-)  

→ BUT increased reliance on own 

→ BUT scope debated/delayed. 

resources 

Teleworking (+/-) 

Higher global competition in services 

Agglomeration effect due to  

(+) 

de-urbanisation (-) 

Reduced commuting time and 

increased connectivity (+) 

Reduced creativity (-) due to less 

face-to-face contacts. 

Concentration: increase  

Network effects (+)  

High fixed costs & low marginal costs 

(+) 

FDI investment:  
From inward global trend to regional 
FDI. 

shortening global value chains on 
sustainability: mixed 

Boost to circular economy (+) 
“Lean infrastructures” for green 
economy (+) 

Larger edge between more and less 

Delay of renewable energy capacity 

productive firms (+). 

due to GVC disruption (-) 

Digital skills premiums: positive 

Deeper skills gaps and mismatches.  

→ BUT investment boost on re/up 

skilling.  

Distributional effects: econ. Inequality 

Automation & tele-presence/working: 

Skew towards high-skilled/high-wage 

jobs.  

Losses for lower-skilled jobs in specific 

sectors, e.g. horeca 

11 

 
 
 
 
 
 
 
 
 
 
 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

Table A2: Potential long-term effects of the COVID-19 crisis, selected sectors 

SECTOR 

Digitalisation 

Changes on Global Value 

Chains 

Green Transition 

Manufacturing: acceleration on 

Incentives to reinforce EU 

Goal of net-zero emissions by 

adoption of advanced manufacturing 

crucial manufacturing 

2050, 55 % by 2030 (COM, 2018) 

technologies (e.g. 3D) and Artificial 

segments for national 

Intelligence.  Higher reliance on 

resilience and sustainability 

connectivity and data analytics + 

(COM, 2020a)  

Strong acceleration in specific 

segments - e.g. big incentives to 

electro-voltaic production for 

Increment in human-machine interaction 

(McKinsey, 2020a).  

BUT  Limited scope for ‘self- 

car industry BUT postponement 

sufficiency” in some 

of car purchases due to the 

Power industries: Take up of new 

segments - e.g. limited 

economic constrains, or 

renewable technologies in the energy 

scope for “self-sufficiency” in 

uncertainties about the 

sector (e.g.: wind and solar power 

cars with  existing supply 

regulatory developments. 

generation, smart grids)  

Employment: Potential for more 

chains unlikely to be re-

engineered. (ING, 2020) 

Opposing driving factors: 

downwards pressure on 

automation + possible ‘cleansing effect’ 

In power industries, high 

investment in alternative energy 

due to labour cost increase and lower 

acceleration on EU 

due to low fossil fuel prices + 

capital costs  big changes in skill 

aspirations to become world 

high financial constraints VS 

demand: need for worker up/reskilling 

leader in the production of 

strong RRFs support to clean 

INDUSTRY 

(Manufacturing 

and Power 

Industries) 

Productivity:  positive effect of 

teleworking, servicification and digital 

solutions to automation VS negative 

disagglomeration effect on high-tech 

manufacturing  

Concentration: increment due to deeper 

digital divide between leaders and 

laggards (e.g. textile) and rationalised 

and consolidated capacity (e.g. cars) 

(Deloitte, 2020) 

clean energy. 

energy investments.  

Employment:  Boost in job 

demand in some segments - 

e.g. clean and renewable 

energy VS losses in sectors linked 

to fossil fuel-based car industry 

(ILO, 2018). Overall positive 

impact on low-medium skill 

workers. 

Acceleration in new technologies 

Changes in geographical 

Little effect of COVID-19 on the 

(contactless payments, 3D printing, AI, 

configuration of the sector: 

trend but it could mitigate the 

the Internet of Things, virtual reality) 

shift from international and 

negative impact of over-tourism 

(UNWTO, 2020), + higher reliance on 

long-haul travel destinations 

on the environment (ETC,2020). 

digital platforms, connectivity and data 

to domestic and short-haul 

analytics to tailor on new consumers’ 

destinations (ETC, 2020).  

habits and preferences and also to serve 

demand - e.g. take-away and delivering 

in food services  

If permanent shift towards 

telework and less 

commuting  geographical 

Employment: Higher demand for worker 

distribution of food services 

digital skills due to digital marketing 

about to change. 

strategies + labour demand likely to 

remain depressed for years 

Productivity: possible increment due to 

‘cleansing impact’ and use of digital 

tools VS unwillingness to invest due to 

economic uncertainty  

Concentration: Difficult for SMEs to 

survive and stay competitive in the long-

run (OECD, 2020a). 

12 

TOURISM 

(with food and 

accommodation 

services) 

 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

High acceleration in e-commerce and 

Opposing driving factors:  re-

Reorientation of consumers’ 

omni-channel (Bourlier, 2020), probably 

orientation of consumers’ 

preferences towards sustainable 

retail more so than wholesale  

preferences towards local 

production (McKinsey, 2021). 

production VS 

internationalisation of VC 

due to stronger power of 

retail titans  

Need to comply with circular 

economy principles (COM 

2020b).  

Employment: Increment in job 

demand due to energy 

transition - with the exception of 

motor vehicles and motorcycles 

segments (ILO, 2018). 

WHOLESALE and 

RETAIL 

Employment: Higher skills demand - e.g. 

shop managers’ digital skills or chain 

management skills. Employment gains in 

e-commerce but losses in offline retail.  

Productivity: Possible increment in labour 

productivity thanks to e-commerce 

practices (Falk et al.,2015). Possible boost 

also due to reduction of shops costs, 

higher flexibility in  business and supply 

chain, and competition across locations. 

Concentration: Stronger market power of 

retail titans (Forbes, 2020) BUT hitherto 

offline retailers can compete with pure 

players, thanks to omni-channel sales. 

Construction: mild acceleration on new 

In construction, COVID-19 

Goal of net-zero emissions by 

technologies, e.g. Building Information 

will not reverse the ongoing 

the late 2040s (COM, 2018). 

Modelling (BIM), Internet of Things (IoT)) + 

process of 

tracking technologies to map areas of 

internationalisation, BUT it 

work ( McKinsey, 2020b).  

may slow it down (McKinsey, 

2020b). 

Real estate: teleworking could influence 

buyers’ preferences in choosing a home 

and reduce demand for office buildings 

(Caixa Bank, 2020) E-commerce could 

reduce demand for brick-and-mortar 

shops. 

CONSTRUCTION and 

Employment: Need for worker upskilling 

REAL ESTATE 

to stay update with new technologies, 

including installation of digital 

infrastructure.   

Productivity: digital technologies and 

data analytics could improve control of 

value chain and capacity to monitor 

environmental performance. 

Concentration:  larger scale required by 

specialisation and investments in 

innovation (McKinsey, 2020b)  most 

digitised companies will come out 

stronger (Caixa Bank, 2020)  

In the short-term, need to restore 

confidence of property owners 

and investors to accelerate 

investments in deep renovation 

BUT in long-term, expected 

boost in activity due to faster 

rate of renovation and higher 

demand for energy efficiency.   

Employment: High job demand 

growth due to energy transition 

+ overall positive impact on low-

medium skill employment (ILO, 

2018  

Pressure on real estate to 

commit to sustainability goals 

due to de-urbanisation (PWC, 

2020). 

13 

 
 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

Mild acceleration on new technologies 

Drop in commuting transport 

Climate neutrality by 2045 

and data analytics (e.g. IT and 

- e.g. trains and bus, due to 

(COM, 2018).   

cybersecurity software (KPMG, 2020b) 

spread in telework.  

and real time public transports 

applications.  

Reduction in air 

emission in private transportation 

transportation due to spread 

(McKinsey, 2020c), but higher 

In about 10y reduction in 

Employment: Higher demand for high-

of videoconferencing and 

reliance on individual transport 

tech workers  strong need for 

shift of travel preferences.  

solutions due to de-urbanisation.  

up/reskilling + The decreasing 

importance of physical strength may 

increase workforce diversity - e.g. gender 

balance.  

Possible drop in demand for 

transport services - mostly air 

and sea, less so road and rail 

- due to lower intensity of 

Emission reduction due to 

aircraft, heavy duty road 

transport, and ships more 

difficult. 

TRANSPORT 

Productivity: possible positive effect due 

extra-EU trade.  

Opposing forces: reduced 

to digitalisation and broader use of (real-

time) data 

willingness/financial resources to 

invest + higher health risks + less 

commuting and international 

mobility  lower demand and 

investment in public transport VS 

investment in high-tech public 

transport incentivised by RRFs  

Employment: energy transition 

to favour low-medium skills 

employment, BUT up-reskilling 

requirement (ILO, 2018).  

ICT industry: highly reinforced by being 

Accelerated diversification 

Financial services: the EU set a 

the producers of digital services and 

in supply chains away from 

strategy to make finance more 

products, such as AI, machine learning, 

single source/single region 

sustainable - e.g. taxonomy 

app and innovation ecosystems 

suppliers to minimise 

compliant.  

HIGH SKILL SERVICES  

Employment: automation technology, 

operation risks(CISA, 2020). 

(Professional and 

Scientific, ITCs and 

Financial services) 

teleworking and consequent potential 

Boost in services offshoring  

de-urbanisation could  skew further  

easier to work closely with 

labour markets towards high-skilled and 

service providers and 

high-wage employment  

experts located far away.   

Service sectors generally 

expected to benefitting from 

increased economic activity 

attribute to green transition 

Consolidation: general trend towards 

Workers in services exposed 

(ESDE, 2019). 

consolidation in the various segments 

to international competition 

with big players about to get out 

due to globalisation.  

stronger. 

14 

 
 
 
 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

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15 

 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

European  Commission,  (2020b)  “A  new  Circular  Economy  Action  Plan.  For  a  cleaner  and  more  competitive 
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16 

 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

Mc  Kinsey  &  Co.  (2020b).  “The  next  normal  in  construction.  How  disruption  is  reshaping  the  world’s  largest 
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1 ECFIN’s Autumn 2021 Economic Forecast  

2  Similarly,  different  countries  experienced  very  different  contractions  in  economic  activity,  which  can  be  explained  by  a 
combination  of  factors.  First,  countries  differed  in  the  severity  of  the  pandemic,  the  depth  and  persistence  of  the 
epidemiological waves and the measures they took to mitigate the impact of the crisis. ]While countries like Spain and Italy 
imposed a full lockdown during the first wave, other Member States (e.g. Finland) could resort to less stringent measures to 
contain the propagation of the virus. Second, the sectoral structure of the economy, and the relative weight of some of the 
hardest hit sectors like tourism, exacerbated the economic contraction in some Member States. Finally, other factors such as 
the health of the corporate sector, the strength of the government's monetary and fiscal policy response, and institutional 
differences played an important role in mitigating the impact of the shock. 

3 This final draft of this paper was closed during the first half of June 2021. At this point data for the first quarter of 2021 is only 
available for some countries. For monthly series, the month of February 2021 is partially available. 

4  Throughout  this  note  we  mostly  focus  on  broad  sectors:  A  Agriculture,  forestry  and  fishing;  B-E  Industry  (except 
construction); C Manufacturing; F Construction; G-I Wholesale and retail trade, transport, accommodation and food service 
activities; J Information and communication; K Financial and insurance activities; L Real estate activities; M_N Professional, 
scientific  and  technical  activities;  administrative  and  support  service  activities;  O-Q  Public  administration,  defence, 
education, human health and social work activities; R-U Arts, entertainment and recreation; other service activities; activities 
of household and extra-territorial organisations and bodies. 

5 The projections in Graph 3 allow for an adjustment of economic agents to the "new normal" after the first wave. Indeed, 
simulations are based on a model that accounts for a structural break in July 2020 in most sectors. 

6 See Eurostat variable nasa_10_ki (Gross household saving rate]. 

7  Omni-channel is  the simultaneous use  of  different  channels  (stores, websites, apps,  and  so on)  to  engage  the  consumer 
with the retailer. For details see, for example, Bourlier (2020). 

17 

 
 
 
 
                                                        
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
European Economy Economic Briefs                                                               Issue 069| December 2021  

8 Servicification refers to an increasing reliance of the manufacturing sector on services, whether as inputs, as activities within 
firms,  or  as  final  goods.  Not  to  mistake  with  the  more  general  phenomenon  of  the  growing  weight  of  services  in  the 
economy. 

9  As  part  of  the  effort  to  increase  economic  resilience,  policy  discussions  are  ongoing  to  promote  industrial  and  open 
strategic autonomy in  the  EU by securing  the  supply of  critical  raw materials  and  pharmaceuticals  and  by  supporting  the 
development  of  strategic  digital  infrastructures  and  key  enabling  technologies.  Details  of  these  analyses  and  policy 
initiatives can be found in the recent communication A New Industrial Strategy for Europe (European Commission, 2020a). 

10  Semiconductor Industry  Association, "Study Identifies  Benefits and  Vulnerabilities  of  Global  Semiconductor  Supply  Chain, 
Recommends Government Actions to Strengthen It," 01 April 2021 (available online). 

11 For a detailed analysis of the industry in the EU see Fleming et al. (2021) and for the geostragic stakes see, for example, 
Bloomberg (2021). The 2021 State of the Union Address by President von der Leyen is available online. 

12 Latest available Eurostat data on quarterly registrations of new businesses and declarations of bankruptcies at the time of 
writing this note refer to 2021Q1 (see  https://ec.europa.eu/eurostat/statistics-
explained/index.php?title=Quarterly_registrations_of_new_businesses_and_declarations_of_bankruptcies_-
_statistics&oldid=529262)    

13 Commission Recommendation for Effective Active Support to Employment (EASE) | European Commission (europa.eu). 

18 

 
 
 
                                                                                                                                                                                        
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