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Europe’s second wave poses a double-bottom recession threat

The European economy is slipping towards a double-bottom recession, and economists warn that rising coronavirus infections and new government regulations on people’s movements could shorten the region’s recent recovery. I am.

Germany, France, the United Kingdom, Italy, Spain and the Netherlands all announced last week measures to contain the second wave of Covid-19 infection, but more are expected in the future.

On Sunday, Belgium announced that it would close all bars and cafes for four weeks, and Switzerland increased its obligation to wear masks. France has put into effect a curfew in Paris and other cities since Saturday.

Countermeasures have followed a sharp increase in the number of cases, with many European countries reporting record new daily infections over the weekend.

Catalina Utermel, Senior Economist at Allianz, said: “Currently, growth has turned negative in some countries in the fourth quarter. Another recession is absolutely possible.”

Third-quarter figures are expected to show record growth in eurozone gross domestic product when released at the end of this month, but more and more economists have already put their fourth-quarter forecasts in the negative territory. I’m truncating.

Lena Komileva, Chief Economist at G + Economics, said:

These predictions that the eurozone economy will return to recession are much shallower than earlier this year, but bad news for the European Central Bank, which predicted fourth-quarter growth of more than 3% last month alone. Another setback would undermine the ECB’s belief that the eurozone economy will return to pre-pandemic scale by 2022.

“See you again” — The Dutch government ordered bars and restaurants to close at 10 pm this week © Sem van der Wal / EPA-EFE / Shutterstock

A deserted classroom in a closed school in Prague — the Czech Republic was one of the countries most hit by the second wave of infection © Petr David Josek / AP

Last week, De Nederlandsche Bank Governor and member of the ECB Governor Klas Knot said: “Many countries are now experiencing a second wave of infection … This means that recovery looks farther than we expected. And the economic impact is deepening. I am. “

Most analysts expect the ECB to respond to the recent deflationary downturn by adding € 500 billion to its December emergency bond purchase program.

Roberto Holtzmann, who is usually a conservative head of the Austrian central bank and a member of the ECB council, said as a further sign that more monetary easing is likely to take place: Stated. I will do it. “

The EU’s planned recovery fund of € 750 billion is still under discussion and is unlikely to begin distributing funds for almost a year. Meanwhile, governments “need to close the gap,” said Nadia Garbi, economist at Pictewelth Management.

A line chart of the Eurozone service purchase manager index (less than 50 = reduced activity) showing the September PMI report showed signs of a

Political leaders still want to avoid the harsh blockades that caused the record post-war recession in the second quarter. “Politicians have learned lessons from the first wave,” said Jorg Kramer, chief economist at Commerzbank, a German lender. “Due to the enormous economic costs, a second undifferentiated blockade is not expected.”

However, as daily infection levels in many countries exceed the previous peaks of the March and April pandemics and hospital beds fill up again, governments may have no choice but to tighten regulations.

Even without a full-scale blockade, the mere fact that coronavirus infection rates are skyrocketing can hurt consumer activity, much more, as it was when the pandemic first occurred. Encourage people to stay home and spend less money.

Eric Nielsen, UniCredit’s Chief Economist, said: “With these types of shocks, it takes nothing to push us into the negative realm.”

A recent FT analysis of mobile data from the Google community shows that after months of growth in cafes, restaurants, retail stores and leisure facilities, again in many European cities, including Paris, London, Amsterdam, Berlin and Madrid. It started to decrease.

Central banks are closely monitoring this high frequency of data for signs of how the second wave of infection is affecting the economy. “Currently, the impact of demand is dominant, and the labor-intensive services sector is very seriously affected,” said the ECB’s governing councilor. “Double dip is possible.”

This poses a problem for countries such as France, Spain and Portugal, which have large service sectors that require a high degree of social interaction, such as tourism and leisure. Allianz drastically lowered its economic forecasts for Spain and France last week, predicting that instead of growth it would shrink 1.3% and 1.1% in the fourth quarter, respectively.

Last month’s IHS Markit survey of purchasing managers revealed for the first time since May that the majority of eurozone service businesses reported a sharp decline in activity from the previous month.

Even better, the same survey found that manufacturing activity improved. This was boosted by the recovery of world trade, especially exports to China. As another bright sign, German factory orders rose 4.5% in August, better than expected.

Carsten Brzeski, ING’s chief eurozone economist, said some German manufacturers personally boast that the last three months of the year will be “the best quarter for some time.” “This may be enough to avoid a double dip,” he said.

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