Europe’s outlook clouded by delta variant
Across Europe, governments and businesses are maneuvering to try to stop a surge in coronavirus cases — driven by the rapid spread of the delta variant — from hampering the continent’s recovery.
For the past few months, the relaxation of pandemic restrictions and the growing ranks of the vaccinated have propelled the economy forward. The European Commission recently upgraded its forecasts for the region. Britain has recorded four straight months of economic growth, and in some regions of the country, the number of employees on payroll is higher than before the pandemic.
But now the delta variant is casting a shadow over the summer and threatening the upbeat outlook. It has made the path of the recovery much more unpredictable and uneven.
BRITAIN
In Britain, the final lifting of restrictions Monday is expected to add fresh momentum to the economic recovery. But the surge in infections presents an unexpected new hurdle to businesses trying to operate at full capacity. Businesses including hospitality, theater and trucking are having to temporarily shut as staff go into self-isolation because they have either caught the virus or have been told they have come into contact with someone who has.
The surge in the number of people self-isolating has been a curveball even for businesses that prospered during the past 16 months. Fowlds Cafe, on a residential street in South East London, needed to close only five days during the first lockdown while the owner quickly transformed it into a coffee shop and general store with no seating. Business has been strong.
But after carefully navigating the pandemic restrictions for more than a year, Fowlds recently had to shut for three days because a member of staff was in contact with someone who had the virus — so the rest of the team also needed to self-isolate and wait for coronavirus test results. Such closures are becoming more frequent. This week, the average number of new cases climbed above 30,000 per day for the first time since January.
“I do think it’s going to be very disruptive,” said Jack Wilkinson, the owner of Fowlds. He is trying to mitigate the impact by looking for more part-time staff to reduce the chances of the whole team needing to isolate at once. But he said he was unlikely to reintroduce seating in the cafe until next spring, to help keep staff and customers safe.
And there is a risk that rising case numbers persuade people to spend more time in their homes and not out in restaurants, gyms and theaters, spending money to drive the economy. Recently, the number of restaurant bookings and retail foot traffic plateaued.
“Something does feel a bit different this time around,” Wilkinson said.
SOUTHERN EUROPE
In other European countries, rising case numbers have collided with the return to normal life, and restrictions have been reimposed. In Spain, which once again has one of the highest infection rates in Europe, some regional governments have reintroduced restrictions. The virus is mainly spreading among the younger, unvaccinated population, creating fears of a new pullback in international travel and canceled bookings.
Portugal has reintroduced a curfew in Lisbon, Porto and other popular tourism spots, dampening a second summer travel season. When the European Commission published its latest economic forecasts last week, Portugal was one of only two countries for which the growth prediction was not upgraded, because coronavirus restrictions in June had slowed the pace of recovery there.
“Spain and other Mediterranean countries, they really have a big problem,” said Guntram Wolff, director of Bruegel, a Brussels-based economic think tank. “This health situation affects a critical sector massively,” he said.
NORTHERN EUROPE
This week, France and the Netherlands also announced new measures. In France, the government is trying to avoid another shutdown by introducing a “health pass,” showing whether users are vaccinated or recently tested negative, to get into restaurants and aboard planes and trains. The country has pursued a “whatever it takes” policy to support workers on paid furlough and to help businesses avoid bankruptcy. Of nearly 300,000 jobs destroyed last year, around 187,000 new ones have been created.
The German economy has been bouncing back quickly. Masks are still mandatory inside stores, but restaurants are open and full. The unemployment rate, at 5.9%, is almost back to the precrisis level. Optimism among German business managers is at its highest level since the beginning of 2019.
But Germany’s recovery has also been bumpy, and, as in the rest of Europe, the delta variant is a looming threat. The infection rate in Germany remains very low, at 8 per 100,000 people over seven days. But the number of new cases has doubled in the last week, and three-quarters of those were attributed to the variant. More than 2 million people are still on paid furlough and not counted as unemployed. The auto industry, Germany’s biggest export sector, is struggling with a shortage of semiconductors.
So far there is no talk of renewed lockdowns, but quarantine rules for travelers returning from Portugal and some other countries will discourage tourism. That is bad news for the rest of Europe: Germans are among the continent’s most avid travelers.
A ‘FRAGILE SITUATION’
On a recent visit to Brussels, Janet Yellen, the U.S. Treasury secretary, urged Europe to maintain a supportive fiscal stance through next year and “seriously consider” additional fiscal measures.
Although there are limited new things Europe can do, governments must not withdraw fiscal support prematurely, Wolff of Bruegel said. “That’s the key message because we are still in this very fragile situation.”
Aside from carefully considering vacation locations to avoid virus hot spots, there has not been a “big adjustment in the behavior” by Europe’s population because in some countries, the case numbers are still relatively low, Wolff said. But he expects the situation to worsen. “With the delta variant, we will see consequences in the fall,” he said.