Fresh lockdowns announced across Europe in recent days to contain the resurgence of the coronavirus pandemic have triggered a flurry of downgrades to economic growth forecasts as restrictions on activity threaten the continent's recovery.
The eurozone economy is now expected to shrink by 2.3 per cent in the fourth quarter of this year, according to economists surveyed by the Financial Times — a worse performance than they had predicted before the restrictions were announced.
The bloc rebounded from its coronavirus-induced recession in the three months to September, recording record quarterly gross domestic product growth of 12.7 per cent, figures published on Friday showed, but output was still well below pre-pandemic levels.
The data, along with the array of fresh restrictions announced in France, Germany and other countries in recent days, sent economists scrambling to update their forecasts. An FT survey of 18 economists at leading banks and institutions found that all but one expected the eurozone economy to shrink again in the final quarter. Most had previously forecast positive growth.
The Bank of England is expected to forecast later this week that the UK's summer rebound in growth was weaker than it estimated in August, that output will at best barely grow in the fourth quarter, and that the economic scars will be deeper and longer-lasting than hoped. A second national lockdown for England was announced on Saturday, with all hospitality and non-essential retail to close for at least four weeks from Thursday.
Christian Keller, chief economist at Barclays, said: "Although the outlook for manufacturing has held up relatively well . . . the downturn in the much larger service part of the economy directly affected by the new restrictions is likely to pull the euro area economy into negative growth again."
Infection rates across Europe are continuing to climb, according to data published on Sunday by the European Centre for Disease Prevention and Control.
Case numbers in Belgium — the EU's worst-affected state — rose from 1,600 per 100,000 people on Friday to 1,702, ahead of a partial lockdown due to come into force on Monday. The infection rate in the Czech Republic — the second worst-hit — rose from 1,513 to 1,561, while it climbed above 1,000 in both Slovenia and Luxembourg.
In France, which began its second national lockdown on Friday, case numbers rose from 706 to 742; in the UK, the rate rose from 438 to 460; and in Germany — where a partial lockdown will be imposed from Monday — the figure increased from 182 to 206.
Despite the rise in cases, the new measures are less severe than those imposed in the spring, while companies are better equipped to cope with the disruption, meaning economists expect the fresh economic decline to be milder than in the first lockdown; eurozone economic output fell 15 per cent in the first half of 2020.
Katharina Utermöhl, an economist at Allianz, said businesses "have gained experience in navigating tough lockdown restrictions".
Manufacturers' supply chains remain relatively unscathed and exports are rebounding.
German foreign minister Heiko Maas told the Tagesspiegel newspaper that the country's borders "will remain open" although the new restrictions prohibit unnecessary movement between cities and ban hotel stays for tourists.
Additionally "activity in some sectors has still not got back to pre-crisis levels so simply can't fall as far this time", said Andrew Kenningham, an economist at Capital Economics.
In France, small businesses are complaining the lockdown favours big chain stores, hypermarkets and online retailers such as Amazon.
The government's list of essential businesses that can remain open includes grocers, wine stores, bike repair shops and computer and mobile phone sellers, but it excludes bookstores, florists, clothing and toy shops just as the key Christmas shopping season starts.
Bruno Le Maire, France's finance minister, last week said he expected economic activity to fall 15 per cent during the new lockdown — half the 30 per cent hit which he said it experienced during the weeks of lockdown in the spring.
Gilles Moec, chief economist at Axa, predicted that if the French lockdown lasted until mid-December "with a moderate relaxation in the run-up to Christmas" it would lead to a 7.4 per cent quarterly fall in national GDP.
Lena Komileva, chief economist at G+ Economics, said: "Measures may prove slower to lift fully during the long winter flu season, even with the strong but short seasonal boost of Christmas travel and retail activity."
And the risk of future lockdowns would also influence consumers' behaviour, according to Carsten Brzeski, an economist at ING: "There will be more precautionary savings simply because more people will believe there could be more lockdowns into next year even after things are opened up again."
He forecast eurozone GDP growth of only 0.7 per cent quarter-on-quarter in the first three months of next year.
- Additional reporting by Michael Peel, Joe Miller and Leila Abboud.
Written by: Martin Arnold
© Financial Times