LONDON – The faint hopes that Europe was recovering from the economic catastrophe caused by the pandemic have disappeared as the lethal virus has resumed rapidly spreading across much of the continent.
After booming in the early part of the summer, the UK economy grew far less than expected in August – just 2.1 per cent from July, the government reported Friday, adding to concerns that further weakness is taking place. prospects.
Earlier this week, France, Europe’s second largest economy, lowered its forecast for the pace of expansion for the last three months of the year from an already low of 1
The decline in expectations is a direct consequence of the alarm over the resurgence of the virus. France reported nearly 19,000 new cases on Wednesday, a one-day record and nearly double the number the day before. The wave prompted President Emmanuel Macron to announce new restrictions, including a two-month closure of cafes and bars in Paris and surrounding areas.
In Spain, the central bank governor warned this week that accelerating the spread of the virus could force the government to impose restrictions that would produce an economic contraction of up to 12.6 percent this year.
The European Central Bank’s chief economist warned on Tuesday that the 19 countries sharing the euro currency may not recover from the disaster until 2022, with those dependent on tourism particularly vulnerable.
Summer looks more and more like a long time ago.
In July, with lower infection rates, lockdowns were lifted and many Europeans indulged in the sacred ritual of the summer vacation the signs of rebirth appeared abundant. Many European economies expanded strongly as people returned to shopping, dining and holiday destinations. More optimistic economists have begun to celebrate a so-called V-shaped recovery, characterized by a rebound just as steep as the collapse that preceded it.
Hopes were also supported by a historic agreement forged by the European Union to raise a € 750 billion (US $ 883 billion) relief fund through the sale of bonds collectively guaranteed by all members. That move overcame years of resistance from debt-averse northern European countries, while signaling that the European bloc – not generally known for crisis cooperation – had reached a new state of solidarity.
But most economists thought better days would only last as long as the virus was contained. The restrictions imposed by governments appeared less important than the willingness of consumers to interact with other people, returning to workplaces and commercial areas.
In a report this week, Oxford Economics, a research institute in London, analyzed data across the eurozone, noting that much of the improvement in late summer was the result of factories returning to life after the closing. For the expansion to continue, people must purchase the products that the factories are making. Willingness to spend is influenced by self-confidence that people feel secure enough to move; if they fear they may lose their job.
In September, when coronavirus cases rose again, consumption fell.
“With the health situation unlikely to improve in the short term, we expect the recovery to slow again in the coming weeks,” concluded the report, which was written by Moritz Degler, a senior economist at Oxford Economics.
The economic slowdown is manifesting itself just as some European economies are starting to decrease the extraordinary sums they have spent on protect workers from unemployment, raising concerns about a seemingly inevitable rise in unemployment.
In Britain, the government, led by Prime Minister Boris Johnson, has aggressively subsidized wages to companies affected by the pandemic as long as employers do not lay off their workers. The public was covering 80 percent of wages when the program started in the spring. Even after a gradual easing, the government is collecting 60 percent of the costs this month.
But the permit program, which cost the Treasury 39 billion pounds (about $ 50 billion), will expire at the end of the month. Public finance overseer Rishi Sunak expressed concern over Britain’s debt size as he pledged to settle the accounts. Under a streamlined replacement program announced last month, the government will only cover 22 percent of wages in the future.
But the rapidly deteriorating economic outlook forced Mr. Sunak to return to the well. On Friday, in anticipation of tighter limits for businesses, he announced a new layoff program that would cover two thirds of the salaries of companies that have to close due to the rapid increase in virus cases and which would also increase subsidies. The measures could be particularly significant in industrial areas in the north of England, where a wave of electoral support for the Conservative Party in last year’s elections helped keep Mr Johnson in office.
Fears of declining fortunes in Britain have been amplified by the possibility that the nation could exit the European Union at the end of the year – completing the tortuous Brexit process – in the absence of a deal governing future trade. This would risk killing the workplace chaos, especially in ports.
Across the Channel, the fall has led to awareness that complex obstacles remain before the European Union relief fund can be administered, limiting prospects in the worst-hit countries such as Spain and Italy.
Spanish Prime Minister Pedro Sánchez on Wednesday announced a stimulus spending plan worth 72 billion euros (85 billion dollars), with four-fifths of the money planned for the European fund.
Spain may have to wait for that money. The fund is expected to be operational by January, but it will almost certainly face delays as European Union members discuss conditions on its distribution, in particular rules aimed at compelling Hungary and Poland to abide by the bloc’s democratic norms.
The continent’s recovery prospects are further hindered by rules that limit the debts of EU members and curb spending. These restrictions have been lifted, but will eventually return, limiting growth prospects.
Italy is expecting to receive 209 billion euros (246 billion dollars) from the European Relief Fund, but the government has also pledged to reduce its public debt, which at the end of last year exceeded 134 percent of annual economic output. Such austerity, as well as the pandemic increases the costs of medical care, will almost certainly plunge Italy into a longer and deeper recession.