The coronavirus pandemic continues to dominate the headlines as countries are struggling to deal with it and its impact on the economy. Notably, Europe is trying to cope with the second wave of infections. Unfortunately, it has the potential to create huge pressure on the region’s economy.
People should keep in mind that, the economy of the eurozone shrank by 11.8% in the second quarter of 2020, due to strict lockdown measures used to contain the spread of the virus. Moreover, economists predicted a rebound in the second half of the year. However, the second wave of infections may change the situation.
Moreover, many governments are announcing new lockdown measures, etc. It is hard to blame them as they have to cope with a significant uptick in cases.
There is a serious issue which may create a lot of problems. The chance of a double-dip, that is another contraction in the fourth quarter increased and people should be aware of this issue. Notably, it is likely that governments will announce more regional lockdowns in the coming weeks, already seen in the capital city of Spain and Lyon, France.
Based on the information provided by the European Centre for Disease Prevention and Control, as of September 22, there had been 2.9 million cases.
According to the data, this week the recovery has stalled in the eurozone in September. As a reminder, the eurozone is a monetary union of 19 member states of the European Union. Members of the union adopted the euro as their primary currency and sole legal tender. Importantly, the flash eurozone PMI (purchasing managers’ index) composite index which measures both manufacturing and services stood at 50.1. The result above 50 indicates expansion while the result below 50 signals contraction.
Europe and risk factors
The coronavirus pandemic is far from being over. This fact once more underlines the severity of the problem. Interestingly, concerns regarding the economic impact of further restrictions sent European equities into sell-off mode earlier this week.
Notably, the pandemic represents the main risk factor to recovery. Moreover, the risk is rising and governments should pay more attention to this threat.
This week more precisely on Tuesday, the government of the U.K. made an important announcement. According to this announcement, the government decided to close pubs and restaurants early and people should work from home if possible.
The new measures will primarily affect the services sector for the second time, and that will lead to slower business activity in the coming months.
Importantly, the flesh composite index for the U.K. came in at 55.7 this month. This was the worst result in three months. Also, this result highlighted that economic recovery started to lose momentum in the country.
According to the British scientific advisors, the number of new coronavirus cases could reach 50,000 a day by mid-October. The government wants to contain the spread of the virus. The pandemic already caused a lot of problems. However, Europe is now grappling with the second wave of coronavirus infections. It won’t be easy to boost the region’s economy.