State of European Economies Amidst a COVID-19 Resurgence

Tables and chairs piled up in the window of a closed Parisian restaurant, as the city braces for another lockdown.

Spirits are down in Europe this week. As winter approaches, the continent has seen another wave of new coronavirus cases, even surpassing records from the spring in some countries. The spikes in recorded cases come as COVID-19 limitations have relaxed, and partial reopenings have enabled a breakdown of social distancing restrictions. Due to the recent outbreaks, Europe—notably the United Kingdom, France, and Germany—has plunged into round two of lockdowns. The strict isolation is taking a toll on many Europeans as “pandemic fatigue” looms large. But does this jeopardize Europe’s economic recovery? 

Top economists say yes. Expectations for a full economic revival have become a “summer memory” for most European countries. After lockdowns were lifted in July, European economies experienced rapid resurgence because of commercial reopenings and signs of an optimistic economic revival. But with the rapid resurgence of coronavirus in the continent, economists’ hopes of a V-shaped economic recovery have been all but quashed. The European Central Bank’s chief economist projected that the euro currency might not experience a full recovery until 2022, and that COVID-19 will be incredibly detrimental with countries dependent on tourism. Hopes have given way to the promise of economic decline and a second round of stifling shutdowns. 

In the United Kingdom, the influx of coronavirus cases has been particularly detrimental. The U.K. now has a total of 1.17 million cases and is averaging about 23,287 new cases per day. Increased government-sponsored testing and more relaxed holiday restrictions and travel have only exasperated this steep rise in cases. British prime minister Boris Johnson announced that a new four-week stay-at-home order is set to begin on Thursday, November 5. The recent lockdown remains strict but slightly less restrictive than those in the spring. The lockdown order allows people to leave their homes only for essential purposes like going to school or buying groceries. Residents are expecting cold weather to add to the isolation. Britain’s economy will likely take a big hit from this shutdown; the European Commission predicts that its economy will contract by about 10.3% in 2020, followed by a growth of just 3.3% and 2.1% in 2021 and 2022, respectively. 

After the imposition of these coronavirus lockdown measures, the U.K. is scrambling to act fast, before winter sets in, to remedy the economic repercussions. The British government and the Bank of England have joined hands in supporting the British people: the central bank increased its monetary stimulus by 150 billion pounds ($195 billion), and the government extended its salary support program through March. This was welcome news by employers and employees hurt by dwindling consumer demand. The Job Retention Scheme, the government-sponsored furlough program that ensures the government will pay 80% of peoples’ wages that are unemployed, has been extended from its original expiration date of October to March. These economic buttresses are expected to buoy the economy in the short-term, but they are not expected to repair long-term damages to the economy. 

Meanwhile, France is subject to a similar pandemic plight. The French government reported a record-breaking 31,000 average new daily cases, adding to a total of 1.66 million coronavirus cases in France overall. The nation faces severe economic downturn threats and strained support for quarantine measures as French president Emmanuel Macron instated a second nationwide lockdown that extends into early December. Like the U.K., this lockdown will allow the continuation of essential activities. Figures say that the new lockdown will overshadow the summer’s temporary economic revival, estimating a €60 billion loss for every month of total lockdown. To prevent further damage to their GDP, French lawmakers moved to pass a new €100 billion package in addition to the €500 billion in aid instated under the previous lockdown. 

Germany’s coronavirus situation is also similar to their French and British neighbors. As of last week, the government reported an average of 17,068 new cases per day, which is unprecedented for the country, whose total case count has now climbed to 654,000. This led German Chancellor Angela Merkel to announce a partial-lockdown last week to decrease hospitalizations and preserve hospital capacity. There are plans of protests across Germany in the coming weeks by concerned German citizens against this “de-facto” shutdown. The European Commission expects Germany’s GDP to fall about 5.6% this year. Other countries like Spain are looking to drop by about 12.4%. These projections pose most countries in Europe in a difficult position heading into a brutal winter. 

The current state of Europe does not bode well for the United States. As the U.S. has remained about three weeks behind Europe in COVID-19 conditions, trajectories, and response, U.S. officials caution that a coming spike in cases will force the U.S. into similar shelter-in-place measures, with economic devastation sure to follow. However, with the strides European governments are taking to support their economies, experts are hopeful for an eventual turnaround against the virus in both continents.

Photo from Shutterstock.