Eurozone’s consumer-led recovery continues despite Covid resurgence

This summer’s resurgence of coronavirus cases across the eurozone has had little impact on the bloc’s economic recovery, according to unofficial data which suggest that European consumers are driving the rebound.

The high-frequency indicators show that measures such as visits to leisure venues, spending, travel and hiring are all at or near their highest levels since the start of the pandemic. This suggests that the rebound in economic output logged in the second quarter will be sustained in the three months to the end of September.

The alternative indicators have been widely watched since the start of the pandemic because they offer a more timely gauge of activity, even if they are less comprehensive and reliable than official data.

“It seems that the Delta variant is having very little economic impact,” said Jack Allen-Reynolds, an economist at Capital Economics.

Silvia Ardagna, an economist at Barclays, said: “High frequency indicators suggest strong activity.”

After rising sharply in June and July, a tracker compiled by the OECD, which uses measures of mobility and Google word searches as a proxy for labour markets, consumption and sentiment, held steady in August at about its highest level since the start of the pandemic.

Line chart of % change relative to same week in 2019 (rolling four-week average) showing activity has improved across the eurozone's major economies

“The major eurozone economies are proving [to be] more resilient to the fourth wave of Covid infections than previous ones,” said Nicolas Woloszko, an OECD economist.

The upbeat picture in consumer-driven parts of the eurozone economy is in sharp contrast with the bloc’s manufacturing sector. The escalating supply chain delays are fuelling concern among businesses about the prospects for the coming months, according to recent surveys.

German truck mileage — a proxy for industrial production — has been on an almost uninterrupted downward trend since its March peak, according to the country’s statistics office.

Line chart showing German truck mileage has been weakening for some time

The overall economic rebound was being “driven by the recovery in private consumption as household spending has increased sharply with the reopening of the services sector”, Ardagna said.

Google data on visits to bars, shops and restaurants illustrate the recovery across services industries.

“I don’t think we see much Delta variant impact on mobility at the moment,” said Bert Colijn, an economist at ING.

Line chart of % change compared to pre-pandemic level* (rolling seven-day average) showing Visits to shops, restaurants and entertainment have almost fully recovered

Data also suggest that this summer’s tourism season has been much stronger than last year’s. In Spain, hotel occupancy has recently topped 50 per cent for the first time since the pandemic began.

“Germany, Italy, Portugal and Spain witnessed rapid rises in new short-term let bookings,” said Jamie Lane, vice-president of research at AirDNA, a rental data company. Its findings match the booking trend tracked by Sojern, a tourism data analytics business.

Line chart of % change compared with same week in  2019 (rolling three-week average) showing Europeans are booking more hotels

Holger Schmieding, an economist at investment bank Berenberg, said although tourism was quiet in May and June, the subsequent “clear uptrend” indicated by high-frequency data suggested that the eurozone’s Mediterranean economies would “enjoy half a normal summer season this year”.

This is feeding through into service sector jobs. Figures from job advertising website Indeed show that vacancy levels have boomed — only in Spain is hiring still below pre-pandemic levels.

“Now that vaccination rates have surpassed US and in some cases even UK levels, economic activity in the eurozone is recovering strongly — to the benefit of labour markets,” said Ellie Henderson, an economist at wealth management firm Investec.

Line chart of % change in job postings from pre-pandemic level* showing Demand for workers is rising rapidly

But some areas of the economy are still a long way off their pre-pandemic performance. For example, although European flight numbers are at their highest since early 2020, they remain 30 per cent below 2019 levels.

Line chart of % change from pre-pandemic level* (seven-day moving average) showing European flights at highest level since pandemic began

Box office revenues across the eurozone’s four largest economies reached $16m in the middle weekend of August, up 70 per cent from the same weekend last year. But that is still well below the $50m earned in the same period in 2019, according to website Box Office Mojo.

Forms of entertainment which attract large crowds such as concerts and shows also remain restricted in many countries.

Column chart of Amount taken in middle weekend of August ($m) showing Box office revenues are still well below pre-pandemic levels

Public transport use has improved in recent months, but it is still below pre-pandemic levels across all major eurozone countries, according to Google mobility data.

This leaves the eurozone’s overall economic performance plateauing well below 2019 levels. The bloc’s output is not forecast to regain its pre-pandemic size until next year — in contrast to the US and China which have already done so.

Rory Fennessy, an economist at Oxford Economics, noted “signs of plateauing as the boost from looser restrictions is beginning to fade”.

Marchel Alexandrovich, an economist at investment bank Jefferies, said European economic activity had been “moving sideways” in August. However, he added that he thought the eurozone economy remained on track to expand by a quarterly rate of about 3 per cent in the third quarter, up from 2 per cent in the three months to June.

Ardagna said she expected eurozone gross domestic product growth to peak at 2.8 per cent in the third quarter.

Overall, economists expect the recovery to continue despite the headwinds.

Given that the latest wave of Covid-19 appears to have peaked, “there should be less concern about a continued economic rebound in the third quarter”, said Colijn.

“We do consider Delta to be a significant downside risk to our outlook for the remainder of the year, but it does seem that the current impact remains moderate,” he added.

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