The rapid spread of the Delta coronavirus variant is causing economists to worry that Europe’s brightening economic outlook risks being undermined by rising infection levels and the reintroduction of travel and social restrictions.
The lifting of most lockdown measures across the region in recent months has led to a surge in business activity, retail spending and household confidence, prompting many economists to upgrade their forecasts for European growth.
However, those assumptions are being thrown into doubt now that the highly infectious Delta variant already accounts for the majority of new cases in many European countries and is driving infection rates up to their highest level for months.
"I'm a bit more nervous that it could get derailed by Delta," said Erik Nielsen, chief economist at UniCredit, which has raised its euro zone growth forecast for this year from 4 to 4.5 per cent.
"It has to get quite bad before we get another lockdown, but Google mobility data shows that it is not so much the lockdowns that drive behaviour but voluntary restraint."
On Friday, Germany and France warned their citizens against travel to Spain, where the coronavirus infection rate has surpassed Portugal to become the highest in mainland Europe, dealing a blow to its tourism sector at the start of the crucial summer season.
Pablo Hernández de Cos, governor of the Bank of Spain, said its forecasts for strong growth were “based on the assumption that the health crisis would be over after the summer” and that Spain’s tourism sector would achieve half its pre-pandemic income this summer, up from a fifth last year.
He warned that there was still “uncertainty surrounding the emergence of new Covid-19 variants and the containment measures that these might necessitate”.
The Netherlands said on Friday it would reintroduce restrictions on restaurants, bars, cafés, nightclubs and live events - only two weeks after lifting them - because of a more than tenfold rise in the country’s daily infection rate to almost 7,000 in that period.
Cyprus also reintroduced rules on the number of people allowed at hospitality and entertainment venues last week after its daily coronavirus infection rate hit a high for the year. Meanwhile, Portugal said holidaymakers must be vaccinated, have a negative test or have recovered from the virus to stay in its hotels or eat inside restaurants in many areas.
The European Centre for Disease Prevention and Control said on Friday that the weekly Covid-19 infection rate for the EU and European Economic Area had risen to 51.6 per 100,000 people, up from 38.6 the previous week, while the hospitalisation and death rates were stable. It forecast the infection rate would exceed 90 per 100,000 people in four weeks.
“There are reasons to be concerned, as the risks are there and there seems to be negative momentum,” said Carsten Brzeski, head of macro research at ING.
Last week, the European Commission raised its forecasts for EU growth in 2021 to 4.8 per cent, after a record contraction of 6.2 per cent last year. Its prediction would be the most rapid expansion seen since 1976 and would mean the EU’s economy regained its pre-pandemic level of output by the end of this year.
Paolo Gentiloni, the EU’s economics commissioner, said the EU’s forecasts did not factor in the prospect of a new wave triggered by the Delta variant, but this was a “downside risk”.
He played down the likelihood of fresh lockdowns, saying: “We don’t see a tendency towards new restrictions. . .we see a tendency towards easing restrictions in important countries.”
Some economists take comfort from the fact that most Delta infections have been among younger people who are less likely to fall seriously ill. Hospitalisations and deaths from the virus remain very low, while more than 44 per cent of EU adults are fully vaccinated.
“Thanks to rapid vaccination progress, we still consider it unlikely that countries will again have to impose serious restrictions to economic activity to contain the medical risks,” said Kallum Pickering, economist at Berenberg.
The Spanish government argues that hospitalisation rates remain low - with only 2.6 per cent of beds occupied by Covid patients compared with 2 per cent a week ago - and that the infection rate is less significant than the rising share of fully vaccinated people. – Copyright The Financial Times Limited 2021