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Virus restrictions deal European economy lesser blow than in spring

The wave of new coronavirus lockdowns that has swept across Europe in recent weeks has hit consumer services activity hard, but the wider economy is less affected than when the pandemic first hit in the spring, according to high-frequency data indicators.

Alternative economic data such as truck mileage, trips to entertainment venues and offices, and restaurant bookings have become widely watched since the pandemic began as they offer a more timely gauge of the economy, although they are less comprehensive and reliable than official data.

The indicators show the damage that the new restrictions are doing to Europe’s services industry, but they also suggest that more people are continuing to travel to work than they did in the spring and manufacturing is still operating.

“Lessons have been learned by governments from the first lockdown as sectors that provide marginal gains in terms of virus containment are now still open,” said Bert Colijn, an economist at ING. “Governments have focused largely on keeping economic activity going and curtailing recreation and retail . . . this is a ‘lockdown of fun’.”

Travel to entertainment and retail hubs plummeted in the first week of November, according to geolocation phone data tracked by Google.

The largest falls were in countries where the new lockdown involved the closure of all non-essential retail, such as France and Ireland.

In countries where restrictions are more narrowly targeted, particularly Germany, mobility to consumer services hubs shrank less.

In some countries, such as Spain and Italy, governments have adopted a mixture of curfews and localised lockdowns rather than strict national measures.

Line chart of % change compared to average from Jan 3 to Feb 6 (rolling seven-day average) showing European visits to retail and recreation venues plunge

The hit to the broader European economy looks milder than in the spring as factories and building sites have remained open in most countries.

Travel to workplaces has not fallen to the levels seen at the height of the first wave of the pandemic, even in the countries with the strictest lockdowns. In France, it fell 30 per cent in the first week of November — half the drop seen in the spring.

In Germany, work-related travel has barely changed from the peak of economic reopening this summer.

Ana Boata, head of macroeconomic research at trade credit insurer Euler Hermes, said the economic hit of the new restrictions to the eurozone economy in the final quarter “should prove 30-60 per cent less severe” than in the spring, and so the bloc’s recovery “could thus be delayed but not derailed”.

She forecast a 4 per cent quarter-on-quarter fall in eurozone gross domestic product in the final three months of this year.

However, she also warned of an increased risk of “of long-term scarring to the economy . . . in the face of more insolvencies, higher unemployment and increased pressure on the banking sector”.

Line chart of % change compared to average from Jan 3 to Feb 6 (rolling seven-day average) showing Mobility to workplaces has not fallen as much as in the spring

Continued growth in Europe’s export-led manufacturing sector is also helping the wider economy.

The German truck mileage index, which closely correlates with industrial production according to the German office for national statistics, was holding up strongly in early November. Germany is by far the eurozone’s largest manufacturing producer.

And the European supply chain is currently running at 94 per cent of its capacity according to Shippeo, which tracks real-time information on transport flows and the operation of power plants across Europe.

Stefan Schneider, chief German economist at Deutsche Bank, said: “European borders for goods remain open, in sharp contrast to April, which will keep disruption of international supply chains at bay.”

Container shipping fees for routes between China and East Asia to Europe — an indication of trade volumes — continued to rise in October and early November, according to the Freightos Baltic index, as Asian economies’ early recovery from the economic impact of the virus supports growth in eurozone exports.

Angel Talavera, head of European economics at Oxford Economics, said: “The industrial sector continues to fare comparatively better, and the recovery in manufacturing looks more solid at the moment.”

The divergence between Europe’s deteriorating services sector and its resilient manufacturing activity “will widen further over the coming months”, he said, adding: “The hope is that this industrial resilience will help partially offset the blow overall to economic activity in [the fourth quarter].”

The outlook may also be aided by the potential Covid-19 vaccine breakthrough announced on Monday, which fuelled a global equity rally. On Tuesday the ECB said that the “long-term damage to the economy could be hoped to be rather small . . . if a vaccine is found that ensures that the shock is not lasting or recurring”.

Line chart of Index (rolling seven-day average) showing German truck toll mileage is up
Line chart of Index showing Freight rates from East Asia to Europe rise

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