C Covid-19

A 4Q GDP Contraction Will Become Soon The Base Case Scenario In Several European Countries

10 October, 2020

As I expected, most of European countries kept implementing restrictive measures over the past few weeks. Unfortunately, worst is probably coming with potential local lockdowns (as we saw in Madrid) in a context where latest statistics confirm that the Covid-19 is spreading quickly.


In France, earlier this week, the Local reported “the metropole areas of Lille, Lyon, Grenoble and Saint-Etienne have joined Paris and its suburbs and the Aix-Marseille area on maximum alert.” It added “the new designations will take place from Saturday morning and will see the closure of all bars in those areas, although restaurants can remain open under strict new conditions.” In addition, two other areas, namely Toulouse and Montpellier, were described as “worrying” by Health minister Olivier Véran, in his weekly briefing on Thursday evening. The ministry reported more than 20,000 new infections on Friday (highest since methodology changed in May and tests increased significantly) but most importantly, new cases for people aged above 69, a good leading indicator to forecast hospitalizations, kept increasing sharply.



In Spain, Bloomberg highlighted that “the Madrid region extended travel restrictions Saturday to four communities that hadn’t been covered by the national government’s state of emergency for the capital the day before. The order forbids inhabitants of those zones to leave except for essential activities such as traveling to work, school or visiting a doctor.” Authories moved quickly ahead of a holiday weekend, with Spaniards celebrating their national day on Monday.


In Germany, AP noted Chancellor Angela Merkel on Friday held talks with the mayors of Germany’s 11 biggest cities. Merkel said she and the mayors “have agreed on measures to slow the spread of the virus by ensuring that social distancing and hygiene rules are respected and contact tracing can continue — despite the growing number of infections Germany is now experiencing.


Elsewhere, Bloomberg (citing Dutch news agency ANP) underlined “the Netherlands reported 6,504 cases, a daily record and rising above 6,000 for the first time“. In this context, the Dutch government is meeting Sunday to discuss stricter measures to combat the spreading of the virus. Yet, the Daily Mail already flagged that “government warned it would be forced to impose tighter restrictions by the end of the weekend if infections did not start to drop.



In the U.K., ministers are mulling new restrictions in areas of northern England where the coronavirus is spreading fastest. BBC reported that Prime Minister Boris Johnson is likely to announce a three-tier local lockdown system as soon as Monday.


As a result, I expect several EU countries to experience a GDP decline in 4Q especially those who already faced a contraction in the services sector in September, such as France and Spain. The deterioration seen in Markit PMIs is also coherent with high frequency data that I’m looking for in the hospitality sector, which confirmed a downturn since mid-August. Therefore, I think that the Bloomberg consensus for 4Q GDP looks very optimistic for several European countries including France (+1.5%) and Spain (+2.6%) and will probably turn negative before year-end.