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.
Europe’s Economy Looking Grim
The reintroduction of lockdown measures across Europe is fuelling concerns. The region could suffer another disappointing summer season if vaccinations do not speed up enough to ease travel restrictions.
Italy has announced a fresh lockdown over Easter, while some German cities have rolled back lifting of restrictions that had only recently been eased because of a sharp rise in infections.
This has prompted private sector economists, including those at Goldman Sachs, Barclays, ING and Berenberg, to cut their forecasts for eurozone growth — in contrast to the brightening outlook for the US and much of the global economy.
“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. He has cut his growth forecast for this year from 4.4 to 4.1 per cent, assuming a one-month delay to reopening.
On Monday, Germany’s chancellor Angela Merkel will meet regional leaders to discuss whether to tighten restrictions after the country’s seven-day infection rate per 100,000 people rose to 103.9 on Sunday. 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. Berlin is considering requiring all travellers from abroad to have been tested for coronavirus before leaving and to go into quarantine on arrival, according to a draft resolution reported by Bild newspaper.
“Of course, risks remain tilted to the downside,” said Nadia Gharbi, economist at Pictet Wealth Management. “A lot will depend on the EU’s capacity to speed up vaccinations in April and May.”
The EU has administered only 12 Covid-19 vaccine doses per 100 residents, compared to 37 in the US and 43 in the UK, according to the FT’s vaccine tracker. Supply problems have hampered progress on European vaccination, and last week several countries temporarily suspended use of the Oxford/AstraZeneca vaccine.
European Commission president Ursula von der Leyen last week said the supply of vaccines would increase in the second quarter, assuring it was on track to vaccinate 70 per cent of adults “by the end of the summer”.
Morgan Stanley economists last week warned that if restrictions continued for several more months, it would cause “another lost summer” and knock 2 to 3 per cent off Spanish and Italian gross domestic product.