Eurozone growth soars record 12.7% but fears grow for winter

A general view of a new railway station construction site, in Stuttgart, Germany, September 28, 2020.   | Photo Credit: REUTERS

The European economy grew by an unexpectedly large 12.7% in the third quarter as companies reopened after severe coronavirus lockdowns, but the rebound is being overshadowed by worries that growing numbers of infections will cause a new downturn in the final months of the year.

The upturn in the July-September quarter – and the worries about what’s ahead – echoed the situation in the United States, where re-openings led to strong third-quarter recovery but didn’t dispel fears for the winter months.

The rebound, reflected in figures released Friday, was the largest increase since statistics started being kept in 1995. It followed an 11.8% contraction in the second quarter in the 19 European Union member countries that use the euro currency. The April-June period was when restrictions on activity and association were most severe during the first wave of the pandemic. Many economists had expected a rebound of around 10%.

Andrew Kenningham, chief European economist at Capital Economics, responded to increases in GDP in member countries Germany and Italy by saying that “these improvements are about to be washed away by the second wave of COVID-19 and a new round of national lockdowns.”

Manufacturing has seen a stronger bounce back than services. Automakers like Volkswagen and Daimler AG’s Mercedes-Benz have seen sales and profits rebound, helped by their exposure to China, where the virus hit earlier but has since mostly been contained.

Meanwhile, businesses that rely on face-to-face interaction, such as restaurants, hotels and airlines have been devastated and are seeing only a small fraction of their previous business. Rising infections led the German government to order theaters, bars and restaurants to close from Monday through Nov. 30.

Transport company FlixMobility said it was temporarily halting its Flixbus service in Germany, Austria and Switzerland and FlixTrain service in Germany starting from Tuesday, saying that the government has asked people to limit travel as much as possible. The company said that FlixBus hoped to resume in time for the holidays; FlixTrain plans to resume “once the situation around corona improves in 2021,” a company spokeswoman said in an email.

European Central Bank head Christine Lagarde said Thursday she expected November to be “very negative,” adding that “most likely our fourth quarter number will be to the downside. Will it be negative? We don’t know at this point in time.”

Lagarde indicated that the ECB was working on a new package of possible stimulus measures to be discussed at the bank’s Dec. 10 meeting and said there was “little doubt” that it would be implemented, given deteriorating conditions. The ECB did not adjust its stimulus efforts on Thursday; it is already pumping 1.35 trillion euros in newly printed money into the economy through regular bond purchases

The jobless rate in the 19 countries that use the euro was steady at 8.3% in September compared to August. The rise in unemployment has been held down by government support programs that pay most of workers’ salaries if they are put on short hours or no hours instead of being laid off.

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Printable version | Dec 5, 2020 9:08:09 PM |

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