Business news

Europe’s second wave raises threat of double-dip recession


The European economy is sliding into a double-dip recession, with economists warning that rising coronavirus infections and new government restrictions on the movement of people are likely to halt the region’s recent recovery.

Germany, France, UK, Italy, Spain and the Netherlands all announced measurements over the past week to contain the second wave of Covid-19 infections. On Saturday, a nighttime curfew was introduced for Paris and a number of other French cities, while the Italian government is expected to announce new restrictions on Sunday.

A number of European countries reported new record daily infection figures over the weekend.

“I can’t believe how fast the second wave hit,” said Katharina Utermöhl, senior economist at Allianz. “We are now seeing growth turn negative in several countries in the fourth quarter – another recession is very possible.”

While third-quarter figures are expected to show record growth in euro area gross domestic product when released at the end of the month, a growing number of economists are already lowering their fourth-quarter forecasts into negative territory.

“The shape of the virus resurgence and the resulting corporate lockdowns and confidence shocks make a double-dip recession the central scenario,” said Lena Komileva, chief economist at G + Economics, adding that Brexit a disruption would “further amplify” the economic slowdown.

These forecasts that the eurozone economy will fall back into recession – albeit much less deep than at the start of the year – are bad news for the European Central Bank, which only last month forecast fourth-quarter growth. quarter more than 3%. Another setback would jeopardize the ECB’s belief that the eurozone economy will regain its size before the pandemic by 2022.

‘We’ll see you another time’ – the Dutch government this week ordered bars and restaurants to close at 10 p.m. © Sem van der Wal / EPA-EFE / Shutterstock

A deserted classroom in a closed school in Prague – the Czech Republic has been one of the countries hardest hit by the second wave of infections © Petr David Josek / AP

Klaas Knot, governor of the Dutch central bank and member of the ECB’s governing council, said last week: “Many countries are currently experiencing a second wave of infections. . . this means that the recovery now looks further away than we had hoped. And the economic impact is deepening. “

Most analysts expect the ECB to respond to a growing economy. slipped into deflation by adding another 500 billion euros to its emergency bond purchase program in December.

In another sign that further monetary easing is likely, Robert Holzmann, the normally conservative head of Austria’s central bank and member of the ECB board, said: “More durable, extended or strict containment measures will require probably more short-term monetary and fiscal accommodations run. “

The EU project € 750 billion in recovery funds is still the subject of debate, so it is unlikely that it will start distributing money for nearly a year. In the meantime, national governments “need to bridge the gap,” said Nadia Gharbi, economist at Pictet Wealth Management.

The Eurozone Service Purchasing Managers Index (below 50 = contraction in activity) line graph showing the September PMI report shows signs of a 'double dip' in the economy

Political leaders still hope to avoid the kind of tight lockdown that sparked a record-breaking postwar second quarter recession. “Politicians have learned the lessons of the first wave,” said Jörg Krämer, chief economist at German lender Commerzbank. “A second undifferentiated foreclosure is not to be expected due to the immense economic costs.”

Yet with daily infection levels in many countries Surpassing the pandemic’s previous peak in March and April and with hospital beds filling up again, governments may have little choice but to tighten restrictions further.

Even without a large-scale lockdown, economists say the mere fact that the coronavirus infection rate is increasing is likely to hit consumer activity, causing more people to stay home and spend less money – as they did when the pandemic first hit.

“If people are scared and stay home, then the precautionary savings will increase again and that could push us to another negative quarter of GDP,” said Erik Nielsen, chief economist at UniCredit. “With these types of shocks, it takes next to nothing to push us into negative territory.”

A recent FT analysis mobile data from the Google community revealed that after increasing for months, footfall to cafes, restaurants, shops and places of entertainment started to decline again in early October. many European cities, including Paris, London, Amsterdam, Berlin and Madrid.

Central bankers are closely monitoring this high-frequency data for the effects of the second wave of infections on the economy. “Demand side effects are currently dominating and labor-intensive service sectors are being hit very hard,” said a member of the ECB’s Governing Council. “A double dive is possible.”

This creates problems for countries like France, Spain and Portugal, which have large service sectors requiring a high level of social interaction – like tourism and recreation. Allianz lowered its Spanish and French economic forecasts last week, predicting that instead of growth, they would contract by 1.3% and 1.1% respectively in the fourth quarter.

Some weakness was already evident in last month’s IHS Markit survey of purchasing managers, which found for the first time since May that a majority of euro area service companies reported a sharp drop in activity of the previous month.

On a more positive note, the same survey found that activity had improved in the manufacturing sector – boosted by a rebound in global trade, especially exports to China. Another encouraging sign is that German factory orders exceeded expectations, increasing 4.5% in August.

Carsten Brzeski, chief eurozone economist at ING, said some German manufacturing companies privately boasted “the best quarter in some time” in the last three months of this year. “It could be enough to avoid a double dip,” he said.



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *