Despite posting record growth for the third quarter, some analysts and economists feel that Europe still faces the spectre of recession.
After the third quarter, there is a looming risk that the region would be pushed straight back into recession as restrictions are being imposed by various governments across the region to curb a second wave of Covid-19 infections, which threatens to stall the rebound in the region’s economy as witnessed in the third quarter.
According to the data available from a statement of the statistics agency Eurostat, there was a 12.1 per cent surge in the gross domestic product of the European Union in the July to September quarter. There was a 12.7 per cent growth in the GP across the 19 countries that use the euro. These growth figures were the highest for a quarter since 1995.
Despite the record expansion, the overall EU economy is still 4 per cent lower than the same quarter a year ago and analysts fear that this momentum can get limited.
“It is difficult to think of another occasion when such ‘good news’ will have given so little cheer,” chief Europe economist at Capital Economics, Andrew Kenningham said in a research note. “The second wave of coronavirus restrictions is about to push the single currency area into a double-dip recession,” he added.
Nationwide coronavirus lockdowns under which non-essential businesses and restaurants will be closed down for several weeks were announced by governments in Germany and France – the region’s biggest economies, on Wednesday. A partial lockdown, including shutting bars and restaurants at 6pm, was announced by Italy but warned that blanket restrictions could be enforced of the infections get worse.
According to said ING economist Charlotte de Montpellier, France has already “entered its second dip,” following a record 18.2% surge in third quarter GDP, and the prospects for a significant recovery in 2021 are “darkening sharply”. “Unfortunately, [third quarter] figures are ancient history and the recovery is already over,” she wrote in a research note on Friday.
Another drop in GDP in the fourth quarter is exacted by Villeroy de Galhau, the governor of France’s central bank, who said this while speaking at a climate event in Paris on Thursday. He however added: “though hopefully one that is less severe” than in the spring.
However the scale of GDP declines will be partly offset as schools and some workplaces will remain open in Germany and France while sectors such as construction and manufacturing will also remain open amid the lockdowns.
Some analysts however noted that many EU member state economies have not yet fully recovered from the historic contractions in the second quarter and therefore a furth rdrop in GDP will be relatively less severe.
According to IHS Markit’s latest Purchasing Managers’ Index, business activity in Europe was in decline even before lockdowns due to the pandemic were announced.
A “clear deterioration” in the near-term economic outlook has been triggered by stricter measures, said European Central Bank President Christine Lagarde on Thursday.
“Incoming information signals that the euro area economic recovery is losing momentum more rapidly than expected after a strong yet partial and uneven rebound in economic activity over the summer months,” Lagarde said.
(Adapted from CNN.com)