Does Economic Growth and Inflation Impact Consumer Confidence during a Pandemic? An Empirical Analysis in EU Countries

Abstract

Abstract The study investigates the capacity of European Union member states to face the effects of the economic crisis caused by the COVID-19 pandemic. Namely, by means of a panel data analysis, the study reports on the impact of economic growth (proxied by gross domestic product) and inflation rates (proxied by harmonized indices of consumer prices) on the overall confidence indicator corresponding to 27 EU countries for the period fourth quarter 2019–third quarter 2020. Results showed that inflation had a negative influence on the confidence indicator during the pandemic crisis, while economic growth had no impact. The negative effect triggered by inflation uncovered the impact of monetary policies and fiscal policies on the staggering level of public debt. The study emphasizes that inflation plays a significant role in the market economy, reason for which governments should monitor this factor when trying to stimulate the economy and set appropriate policies for eliminating negative consequences of potential future recession periods.