News Analysis: Rising coronavirus infections in Europe dampening economic growth prospects

Source: Xinhua| 2020-11-11 05:43:47|Editor: huaxia

ROME, Nov. 10 (Xinhua) -- Europe's service sector is expected to be hit hardest in the wake of the continent-wide spike in coronavirus infections, which could push the economic recovery that started in the second half of this year well into 2021, according to analysts.

On Monday, major European equity markets had one of their best days of the year, with most surging more than 5 percent in the wake of a promising announcement that drug makers Pfizer and BioNTech had made significant progress on a coronavirus vaccine.

But analysts told Xinhua on Tuesday that despite the upbeat reaction of markets, the coming weeks and months could be challenging for European economies.

"Markets probably reacted too strongly to the news on Monday," Carsten Brzeski, chief German economist with Netherlands-based investment bank ING, said in an interview. "The coronavirus pandemic is still the most relevant factor for markets."

The virus surfaced in Europe in February. It spread quickly in Europe in March and April, before tailing off during the warmer months. Starting in September, infection rates began to rise again.

As of Tuesday, three of Europe's five largest economies -- the United Kingdom, France, and Spain -- have all recorded at least 1 million coronavirus infections since the start of the pandemic. Italy is just below that grim benchmark.

"The forecasts are not very bright at the moment," Giuseppe De Arcangelis, a professor of international economics at La Sapienza University in Rome, told Xinhua. "It seems that a new round of lockdowns will be a reality for most European countries."

De Arcangelis noted that after dramatically contracting in the first half of the year, most European economies saw positive growth starting in the third quarter. At the time, economic growth prospects looked good for the fourth quarter of the year as well. But because of the rising infection rate, those scenarios have been adjusted downward.

"It's clear that the fourth quarter is going to be worse than most [analysts] predicted during the summer," De Arcangelis said. "In the end, it may more or less balance out the stronger third quarter by the time we get to the end of the year."

ING's Brzeski said Europe's services sector -- which includes financial services, consulting, maintenance and repair services, and restaurants and hotels -- will probably be hit hardest by any new rounds of coronavirus restrictions in Europe.

"Industrial production will fare better than services," Brzeski said. "So far there's been no second wave of the virus in Asia, which means they'll still remain solid customers for European exports. Most of the value in the services sector cannot be exported, and that will be combined with some closures and lower levels of domestic consumption."

Brzeski said he expected the latest developments to "soften" economic prospects in Europe for 2021, even if the vaccine from Pfizer and BioNTech is widely available by mid-year, as the companies predicted. He said he thought it would take until the second half of 2022 before the European economy returned to pre-coronavirus levels. Enditem

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