Not out of the woods yet: How will the latest Covid-19 wave affect the Euro area's economy?
Over the past month, the Euro area has faced a severe outbreak of new Covid-19 cases. Regional heavyweight Germany logged a record 68,049 new cases on 23 November, while the Netherlands has also seen a record number of new cases in recent weeks. Central and Eastern Europe has been hit especially hard, with the region’s low vaccination rate placing significant pressure on local health systems.
The spread of the virus across the continent is likely linked to colder weather forcing more individuals to stay inside, where it can spread more easily. Moreover, looser restrictions, increased travel, significant pockets of vaccine hesitancy and weakening immunity are all helping to accelerate the transmissibility of Covid-19. The rise in cases has put considerable pressure on authorities to take action, which raises the possibility of fresh lockdown restrictions before a busy holiday season. In Austria, authorities have already decided to reintroduce a nationwide lockdown, despite public protests and nearly 65% of the population being fully vaccinated. Meanwhile, Germany has introduced restrictions on unvaccinated residents, similar to a host of other countries in the region that have decided to keep unvaccinated individuals out of certain public venues such as restaurants and bars.
The risk to the economic outlook for the Euro area has risen due to the spike in cases. Renewed lockdowns will take a bite out of household spending. Meanwhile, souring business sentiment will likely weigh on investment decisions ahead. Nevertheless, economies should be more resilient to Covid-19 restrictions this time around, and fiscal policies remain supportive. Thus, risks to the outlook are likely to remain centered around continued supply chain disruptions, rising price pressures—particularly energy prices—and elevated public debt levels. That said, all these risks will be exacerbated by any further tightening of measures.
Insights from Our Analyst Network
Commenting on the outlook for the Euro area, analysts at JPMorgan noted:
“It remains hard to predict how the new wave will evolve this winter, but the German drag now seems much larger than previously assumed. We are cutting our GDP forecasts for Germany and taking Euro area growth from around 4% (SAAR) to 2.0% for this quarter and next. If, as we expect, mounting pressures raise vaccination rates materially, most of this shortfall is likely to be recovered around the middle of next year.”
Furthermore, commenting on the outlook for the German economy, Carsten Brzeski, Global Head of Macro at ING, noted:
“The combination of supply chain frictions, higher energy prices and higher inflation in general already argued in favor of a significant slowdown of economic activity in the final quarter of the year. The fourth wave of the pandemic could now actually push the economy to the brink of stagnation, or even technical recession. Admittedly, the adaptability of the economy to lockdowns, supported by government and central bank measures, has clearly increased since March 2020.”
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.
Author: Steven Burke, Economist
Date: November 26, 2021
Featured Posts
-
Croatia in the Eurozone: Interview with FocusEconomics panelists
-
What is the outlook for U.S. oil production and prices?
-
What's in store for Russia's economy this year?
-
What's Europe's 2023 economic outlook?
-
Our analysts' expectations for 2023
-
How will China’s latest Covid-19 curbs affect the economy?
-
The World's Fastest Growing Economies
Tags
Infographic Economic Debt ECB UK Major Economies Asia Sub-Saharan Africa Draghi TPP GDP Company News Costa Rica; GDP; Budget Lagarde Copper United Kingdom Spain economic growth Interest rate Forex Base Metals Brexit France Euro Area Economic Growth (GDP) Qatar MENA digitalcurrencies Oil Nordic Economies Vietnam Central America oil prices Precious Metals Commodities Ukraine Nigeria USD TPS Canadian Economy chile United States Japan USA CIS Countries Africa South Africa Fed Latin America Economic Crisis Cannabis Asean Bitcoin Gold Base Metals Commodities Colombia Eurozone Exchange Rates Political Risk Italy Euro Mexico Agricultural Commodities Portugal Greece Inflation Canada centralbanks Argentina Iran Resource Curse Trade Economists Government Bond Investment G7 Turkey Australia Banking Sector precious metals Cryptocurrency Consensus Forecast Palladium Healthcare European Union WorldCup Tunisia Economic Outlook Eastern Europe Exchange Rate election Sterlin Russia Housing Market Emerging Markets Asian Financial Crisis Venezuela Israel TPI Germany Exports Commodities Budget deficit interview India IMF OPEC Dolar China public debt scotiabank Energy Commodities Brazil Unemployment rateTwitter @FocusEconomics
-
Price pressures will soften in 2023 on slowing economic activity and lower commodity prices. Nevertheless,… https://t.co/oNFT7MF3sH
5 days ago
-
In our latest insight piece, we interview Mihály András Kovács, senior advisor at OTP Bank, and Hrvoje Dolenec, chi… https://t.co/Gzrcid43Nk
6 days ago
-
In our latest post, economist Adrià Solanes Roca discusses the upcoming presidential elections in Cyprus and their… https://t.co/T4Ikur25Qi
6 days ago
-
In our latest post, economist Magdalena Preshlenova discusses the benefits and challenges for the Croatian economy… https://t.co/I3ILTmu4v6
1 week ago
-
In our latest webinar, our economists examine the outlook for Latin America's economy this year. Spoiler alert: Eco… https://t.co/wCXk7AY32n
1 week ago