Yet Again, COVID-19 Could Send Europe’s Economy Into A Tailspin

DENMARK / COPENHAGEN _ European union flag golden stars and blue sheet fly over over Copenhagen … [+] today on 14 January 2012 (PHOTO BY FRANCIS JOSEPH DEAN / DEAN PICTURES) (Photo by Francis Dean/Corbis via Getty Images)

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The specter of COVID-19 related lockdowns have reared their ugly head again in Europe. And they could send the continental economy into a tailspin, experts say.

The news last week, the Austria would impose a full lockdown across the country has some commentators worried that governmental urge to control the population will spread across the continent.

“Europe’s economy could get battered this winter if the larger countries follow Austria’s lead,” states a recent report from London-based financial consulting firm Capital Economics. “Then stagnation or even contraction are plausible.”

For Austria, a three-week lockdown would cut GDP growth by 1.5% in the fourth quarter the report states. If the lockdown lasts longer than the proposed three weeks, — a real likelihood given how governments have behaved over the last two years — then expect a bigger hit to the economy.

A lockdown for Austria alone would have a negligible effect on the EU economy. Likely around a 0.1% hit to EU growth, the Capital report states.

However, the real concern is that other national leaders jump on the lockdown bandwagon. They’ve did so a year ago, so don’t discount the idea.

Top on the list of economists lockdown concerns must be Germany, the fourth largest economy in the world, and the largest in Europe. That Capital report explains the matter:

  • “The German government this week announced that it would restrict access to public spaces for the unvaccinated in regions where hospitals are under the most strain.”

That partial lockdown could be just the beginning. The country’s health minister won’t rule out a nationwide lockdown, the report states.

All that is bad, but it comes on the back of what is likely already lackluster economic growth in the single-currency area, a.k.a. the eurozone. “We expect the euro-zone flash Composite PMI to have declined again in November, leaving it at its lowest level since March,” the report states.

Worse still, the composite purchasing manager index, which measure the health of the private sector in the euro zone, could come perilously close to contraction for November as it stands now. The Capital report expects a reading of 52 for the PMI; Below 50 indicates contraction.

The lockdowns in Germany, or elsewhere on the continent, would make matters even worse.

“We expect growth to slow in Q4 [the fourth quarter] as supply change disruptions, high natural gas prices and rising Covid cases take a toll on the economy,” the Capital report states.