The Covid wave threatens Europe's economic recovery | MCU Times

The Covid wave threatens Europe’s economic recovery

Until now, the new Covid-19 wave has only a limited impact on business activity in the 19 countries using the euro. The Purchasing Managers’ Index from IHS Markit, a key measure of the economy, rose in November after falling to a six-month low in October, according to data released Tuesday.

But expectations for the future are darkening. Austria announced last week that it is goes back in a national lockdown. Cloud-rocking infections in Germany have also called into question whether the region’s largest economy could reintroduce extensive restrictions.

“A stronger expansion of business activity in November defied economists’ expectations of a slowdown, but will hardly prevent the euro area from suffering slower growth in the fourth quarter, especially as rising virus rates appear to cause renewed economic disruption in December,” said Chris Williamson, IHS Markits Chief Financial Officer.

According to the European Commission, consumer confidence in the eurozone fell “significantly” in November. IHS Markit reported that corporate expectations this month for future economic output “deteriorated to the lowest since January.”

Ruben Segura-Cayuela, European economist at Bank of America, said more data is needed to assess what restrictions in Europe could mean for the region’s economy. He noted that with each wave of Covid-19 infections, the economic impact has diminished as businesses and consumers learn to cope.

“We know there will be a reaction, we just do not know if it will be of the same magnitude,” he said. “I would assume that, based on what we’ve seen over the last few months, it’s going to be smaller.”

Europe was particularly hard hit by the pandemic in 2020. Economic output fell by 6.3% in the euro area compared to a fall of 3.4% in the United States.

But the region has risen in recent months as vaccination rates have risen. Gross domestic product in the euro area increased 2.2% between July and September compared to the previous quarter.

Stagnation ahead?

Much now depends on how the situation develops in Germany, said Jessica Hinds, European economist at Capital Economics. She believes it is “plausible” that Europe could stagnate at the end of the year if its biggest economy goes into a lockdown.

“We are likely to see some framework for economic activity, just as rising case numbers make consumers more scared and governments demand stricter Covid passports [screening] to various activities, “Hinds said.

As of Wednesday, German employees must present a negative Covid test, their vaccination status or proof of cure from the virus in order to go to work. If they are unable to work from home, they may not be paid. And from Saturday, Berlin will exclude unvaccinated residents from hotels, restaurants, bars and shops with the exception of grocery stores and pharmacies.

German inflation reaches its highest level in 29 years as energy costs rise across Europe

The manufacturing sector in Germany is also still under pressure as supply chain problems continue to rattle car manufacturers and other manufacturers.

France could also announce further Covid-19 restrictions after it reported more than 30,000 new infections on Tuesday, a level last seen in early August. Government officials are expected to discuss new measures on Wednesday.

In addition to coronavirus cases, Europe handles the effects of one economic downturn in China, as well as rising inflation and a crunch on the energy supply which could increase costs for businesses and make it more expensive to heat homes this winter. It can hurt consumer consumption more generally.

Segura-Cayuela said some positive elements of the recovery are still unfolding. Over-savings, built up earlier in the pandemic, for example, are helping to mitigate the detrimental effects of inflation on people’s incomes.

“There are still reopening forces that are helping growth in the short term,” he said.

– CNN’s Xiaofei Xu and Meredith Ruleman in Paris contributed to this article.

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