Several European states returned to slightly loosened forms of lockdowns, as implemented in the spring, amid efforts to curb rapidly rising numbers of coronavirus (COVID-19) infections. The surge in cases will dampen business activity into 2021 and increase pressure on healthcare infrastructure and raise the likelihood of civil unrest within the region.
COVID-19 Cases Return in Autumn
COVID-19 has ravaged Europe particularly harshly. Countries such as Belgium, Spain and Andorra are suffering exceedingly high fatality rates per capita. After a summer of reduced infections, due to strict measures enacted in the spring, COVID-19 cases have risen sharply throughout October across the continent, forming a widely expected second wave. Loosening of safety measures, citizens becoming fatigued towards invasive restrictions, and colder weather returning over the winter months, have all contributed to this sharp uptick.
During October, the virus demonstrated uncontrolled transmission in numerous countries, placing pressure on the healthcare infrastructure of even the most developed nations. In early November, COVID-19 patients accounted for 85% of ICU beds in France. Meanwhile, tens of thousands of patients in the UK face waits of over 12 months for non-urgent treatment, while the National Health Service battles approximately 25,000 new cases a day.
Countries Are Struggling
Several countries which avoided the worst of the initial onset of cases, such as the Czech Republic, have struggled to contain the second wave of COVID-19, witnessing tens of thousands of confirmed cases each day. Half of all COVID-19 deaths in the Czech Republic were recorded in November alone. Meanwhile, some nations, which initially instigated modest restrictions, namely Sweden, strengthened measures, having limited the size of group gatherings after the emergence of a second wave amid criticism of herd immunity strategies. Increased cases are partially explained by expanded testing regimens, which primarily took place in hospitals during the first wave of the pandemic; however, this is merely a contributing factor. Cases have undoubtedly risen substantially since the summer, restoring new pressure on health infrastructure.
Lockdowns to Last Throughout the Winter
Amid a sharp rise in infections, national leaders have closed non-essential shops, prohibited public gatherings, and in some cases introduced overnight curfews. British Prime Minister Boris Johnson, having avoided scientists’ guidelines to return to lockdown since September in favour of a tiered approach, begrudgingly returned the UK to a slightly loosened version on 5 November.
Despite renewed restrictions, these lockdowns are often slightly less prohibitive than those enforced the spring. For example, Britain, France, and Germany’s measures will keep schools open for the foreseeable future. Pubs and bars are being permitted to offer takeaway services. Retail shops in several countries can provide curbside collection services, which proved extremely popular in the United States, during the initial lockdowns, amid efforts to ameliorate the effect on businesses throughout the winter and ahead of Christmas.
Governments in France and Britain have put time limits on these restrictions of 1 and 2 December respectively. Yet it remains implausible that most restrictions will be lifted by early December. Governments hoping to appease voters by lifting measures for Christmas will struggle to return to normalcy by 25 December. High caseloads, combined with inclement weather, facilitating transmission of the virus, alongside schools remaining open, means restrictions will be required into January and February.
Covid-19: Business Impact
Second lockdowns will exacerbate the struggling business environment in Europe, still reeling from the first lockdown and residual weakened consumer spending. The eurozone economy is expected to contract by 2.3% in the fourth quarter and by 7.9% in 2020, double the contraction of the 2009 financial crisis. Certain sectors will be particularly hard hit, notably the hospitality industry, where venues such as bars and restaurants have returned to hibernation. Sector-specific breakouts have also caused massive disruption. Danish authorities demanded the entire mink industry to be culled after the widespread transmission of the virus between animals and humans, which has wiped an estimated 0.7% off Danish GDP in the fourth quarter and almost eradicated an industry within a week.
The protracted detrimental impact of COVID-19 on the travel industry means several southern European states reliant on tourism will struggle. States such as Croatia, Greece, Spain and Italy, where tourism contributes over 10% of GDP have already suffered significant downturns since the arrival of the pandemic, with the summer travel season decimated by the virus. Continued uncertainty over the virus means the recovery of the travel industry as soon as 2021 remains unlikely.
However, other structural reasons mean southern European countries will struggle to support ailing economies, which were suffering before the onset of COVID-19. Existing weaknesses, including high sovereign debt or elevated unemployment levels, will be amplified by the pandemic. According to the European Commission, the GDPs of Italy, Spain, France and Croatia will contract by more than 10 percent in 2020, far more serious declines than several northern European counterparts.
Government coffers will be further hit by increased furlough and support for business schemes, which insofar have masked the true damage of the virus on business activity. Increased spending coincides with reduced government revenues from sharply diminished tax incomes coinciding with the lack of business activity.
The European Union has attempted to ameliorate the economic downturn by agreeing to a mutual recovery fund made available by the European Commission borrowing €750bn from capital markets. These measures, in the form of grants and loans to member states over a six-year period, will not provide a quick fix to glaring holes in government budgets throughout Europe. Less than 10% is expected to be disbursed in 2021.
The European Commission will seek to assist member states in the near term by extending the suspension of its debt and deficit limits beyond 2022, enabling greater public spending on furlough and supporting struggling businesses. States will be able to accrue greater sovereign debt without the fear of EU infringement procedures; however, southern states especially will struggle to fund such assistance. Southern Italy, for example, which is home to a large informal economy, has seen a large fall in household income during the pandemic.
Protracted lockdowns risk prompting intermittent cases of civil unrest against renewed restrictions and in support of the struggling local businesses environment, stemming from those lockdowns. Numerous protests erupted towards the end of October as COVID-19 safety restrictions reappeared in Italy, Germany, France, Spain and the UK, among others.
The longer these restrictions last, the more emboldened civil society movements will become, especially as economic hardships become more apparent during the second lockdown. Protest groups such as the Yellow Vest protest movement in France planned anti-government protests in November to denounce further COVID-19 lockdowns.
Promising news from vaccine trials buoys the outlook for 2021, amid aspirations the virus can be brought under control, ending the widespread current uncontrolled transmission. The emergence of a Pfizer and BioNTech vaccine which has demonstrated a 90% efficacy rate has been reinforced by results from the US-developed Moderna vaccine. The successful development of a vaccine is critical in overcoming a virus which countries globally have predominantly proved unable to defeat by social distancing and other measures. Alongside the thousands of lives saved, the early rollout of a vaccine in 2021 will result in the global growth of 7%, two points higher than the lack of a vaccine, according to the OECD.
Further investigation into these vaccines will reveal their true effectiveness, and whether they can perform critical functions alongside immunisation, such as stopping asymptomatic transmission. If proved effective, governments will need to distribute the vaccine adequately. They face the daunting logistical challenge of inoculating an unprecedented number of people and must do with a vaccine that requires two jabs. Alongside this, it needs to be kept at -70c, providing its own logistical difficulties. This will slow down the rollout of any potential vaccine and herd immunity into mid-2021 at the least. The United Kingdom has begun mass inoculation of the Pfizer and BioNTech. Other countries are reviewing applications.
In the meantime, governments across Europe face challenging policy questions of funding continued furlough and business support, despite ever-increasing budget deficits. They will also need to continue social distancing policies, despite the onset of public fatigue. At the same time, states such as Italy and France will experience continued anti-government sentiment and the eruptions of intermittent civil unrest. Successful development and deployment of a functioning vaccine could see normalcy begin to return to society and the European economies in the latter half of 2021.