Eurozone: The Second Downturn Has Bottomed Out (For Now)

Google mobility data suggests that the bottom in economic activity has been reached given the current set of restrictive measures in place. But with extensions announced or in the making across the eurozone, the economic damage of the second wave could increase.

Airport traffic down during coronavirus restrictions in Netherlands, Schiphol

The second wave of the coronavirus is still bringing an elevated number of new cases on a daily basis in Europe, although they have come down from recent peaks. While it is encouraging to see that the less disruptive measures taken in the autumn have helped new cases come down, it has not yet been enough for governments to alleviate restrictions significantly for the month of December. In fact, some restrictions have already been lengthened well into January – like the closure of bars and restaurants in France – which will lengthen the period of economic fallout and increase the damage done to the economy. The decision of many countries to allow some restrictions to be relaxed for the holiday season is not only a delicate balancing act but also bears the risk of a third wave of infections and consequent lockdowns in January. The US experience with the Thanksgiving break will shed some light on what Europe can expect from the upcoming Christmas holiday.

The second wave has reached its bottom in terms of mobility impact

Stricter social distancing measures and second lockdowns towards late-October/early-November clearly show in the Google mobility data. Our mobility index dropped by some 20% compared with the September peak, with declines in most countries. The Netherlands only experienced a drop of around 10%, where lighter restrictions apparently also led to a lighter slowdown in activity. Still, since they were also introduced earlier than in most other countries, the total impact is still significant. The good news is that the decline in economic activity bottomed out by mid-November. Since then, most countries have seen slight improvements in their mobility figures. Only Spain continues to see a minor downward trend. For all countries, the decline in mobility is far smaller than that seen in the first wave of the coronavirus, which corresponds to the smaller expected decline in economic activity in the fourth quarter than that seen in 1Q and 2Q. Our forecast is for a drop of -2.5% quarter-on-quarter.

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