Outlook darkens for Europe’s virus-stricken economy

Financial Times

Paris introduced new social distancing measures at the weekend in a bid to halt fast-rising infection rates © AFP via Getty Images

Rising infections and new lockdown measures prompt cuts to hopes for growth

Economists are cutting growth forecasts for the eurozone economy as a third wave of Covid-19 infections and vaccination delays spur tighter restrictions in several countries including France, Italy and Germany. The reintroduction of lockdown measures across Europe is fuelling concerns that the region could suffer another disappointing summer tourism season if vaccinations do not speed up enough to allow travel restrictions to be eased. France imposed a new four-week lockdown in Paris and several other regions on Friday night after coronavirus infection levels rose to their highest level since November. Italy has announced a fresh lockdown over Easter, while some German cities have been forced to roll back lifting of restrictions that had only recently been eased due to a sharp rise in infections.

«Up to now, we had built our eurozone forecasts on the assumptions of gradual easing of the lockdown measures in March,» said Carsten Brzeski, head of macro research at ING. «Well, we can forget about this.» He said ING now expected the eurozone economy to shrink 1.5 per cent in the first quarter, having previously forecast a 0.8 per cent decline. Holger Schmieding, chief economist at Berenberg, said each month in lockdown would shave 0.3 percentage points off eurozone growth. If the rate stays above 100 for three consecutive days in a region, an «emergency brake» requires a return to lockdown.

The cities of Hamburg and Cologne have already tightened restrictions. Barclays economists said they now expected European mobility restrictions to only be lifted toward the end of the second quarter, «which will weaken domestic demand, and consequently imports». Although many economists are downbeat about the short-term outlook for the eurozone, most are convinced it will rebound strongly once enough people are vaccinated to lift most restrictions later this year.

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Source: Martin Arnold | Financial Times

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