FRANKFURT, Nov 2 (Reuters) - Europe's second coronavirus
lockdown is less strict and disruptive than the one seen in
spring, at least for now.
This should translate into a less severe hit to economic
growth, although long-terms costs are accumulating.
The following compares the two lockdowns and their effect on
regular life, business activity, employment and corporate
Mortality rates have dropped compared to the spring but
infection numbers are two to three times as high in many
countries, pushing health systems to their limits.
In Germany, intensive care utilization, including for
non-coronavirus infections, is now 15 percentage points higher
than in mid-April, with occupancy rates at 72% nationally and
around 85% in Berlin, according to government data.
In countries like France, the UK and Belgium, which suffered
a more severe first wave, ICU occupancy rates are still below
their spring levels but are rapidly rising.
The implication, analysts say, is that restrictions will
have to remain in place much longer than in the spring and
possibly until a vaccine is available.
A dip back into recession now appears inevitable, economists
say, but the drop in GDP is unlikely to be as severe as in the
spring for two key reasons.
The restrictions on business activity are not as onerous for
now as in the spring, and economic output is still far below
pre-crisis levels, meaning that low base figures will in part
obscure the severity of the hit.
Early estimates suggest that GDP in Germany will contract 1%
to 2% this quarter, while in France the hit could be 3% to 4%.
Estimates for the UK are in a wider 1.5% to 5.5% range,
compounded by the risk of a no-deal Brexit. For comparison, euro
zone GDP fell by 12% in the second quarter.
France and Britain are entering near complete lockdowns,
while Germany is taking a softer approach and others are opting
for even easier controls. Still, overall the measures are seen
as more nuanced and less invasive.
The key difference is that schools remain open and firms in
construction and manufacturing can operate with relative ease.
The huge disruption in supply chains experienced this spring
is also unlikely to be repeated as firms have learned to cope.
So far, people appear to be taking the second wave with
ease. Google data on retail and recreation show mobility 15% to
30% below the baseline compared with an over 80% drop in April.
Congestion data by TomTom appears to show normal or even
above-average traffic in cities like London and Berlin on
Monday, but traffic in Paris, Brussels and Madrid is below
Germany will allow most retail outlets to stay open, while
Britain and France will force non-essential retail to close.
Restaurants, bars and places for leisure and entertainment will
be mostly closed.
Unlike in the spring, the measures are mostly for one month,
implying that governments are willing to consider easing in the
run-up to Christmas. That could be vital to retailers. But
travel and tourism will enjoy little to no benefit.
Fiscal support is already in place with budget deficits well
over 10% of GDP in the euro zone, while borrowing could hit 20%
in the UK. Public guarantees and job protection schemes, cobbled
together quickly in some cases this spring to avoid mass
unemployment, have mostly been extended, avoiding a cliff edge
scenario for firms. France and Germany both announced further
support measures along with the restrictions.
But there are limits to spending. Public debt has soared
above 100% of GDP and some governments are discussing targeting
subsidies, saving only firms perceived to be viable in a
The problem is that firms deemed non-viable, or "zombies",
merely stay alive a bit longer because they can borrow at close
to no cost. But they produce no productivity growth and take
capital away from others.
For now, banks keep such zombies alive to make their balance
sheets appear stronger. Loan impairments have barely ticked up
this year as public guarantees allow banks to keep loans on
Once state aid is curbed, a slew of firms could quickly
close, pushing up unemployment.
The lowest-paid workers are more than twice as likely to
work in locked-down sectors. They also have below-average
education and lower savings. Permanently losing employment would
widen income inequality further, because employment is taking
longer and longer to rebound after recessions. Following
Europe's debt crisis a decade ago, it took employment close to
five years longer than GDP to rebound.
Ironically, the second wave could finally push the EU's 750
billion euro recovery fund over the line. Although EU leaders
agreed in principle over the package this summer, haggling over
the details has held up a final deal.
CENTRAL BANK SUPPORT
The European Central Bank and the Bank of England have both
put in place extensive support measures and both have signalled
a willingness to increase stimulus. That essentially ensures
that governments can continue to borrow at rock-bottom rates to
keep fiscal spending up.
Indeed, borrowing costs even for the most indebted countries
have barely ticked up in the past week. The spread between
German and Italian yields is around the same level as before the
crisis, a big change compared with March when a surge in yields
raised the prospect of insolvency.
(Reporting by Balazs Koranyi; Additional reporting by William
Schomberg; Editing by Hugh Lawson)