Lockdown redux: The effect on Europe’s GDP

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Moderating factors could help limit the economic fallout this time around, says Shamik Dhar, BNY Mellon Investment Management chief economist.

Europe’s major economies could lose around 3% of their GDP in the fourth quarter due to ‘second wave’ lockdowns, says Shamik Dhar, chief economist, BNY Mellon Investment Management.

This could delay what, until now, has been a relatively strong rebound in economic growth with France, Spain, the UK and possibly Germany among the larger economies likely to be affected, according to Dhar.

Dhar bases his forecast on the hit to major European economies during lockdowns earlier in 2020 – but also taking into account moderating factors this time around.

For one thing,” he says, “Less of the economy will be shut down under these latest measures than earlier in the year and, at the same time, we’re more used to new working arrangements than under the first wave lockdowns.

Another moderating factor, says Dhar, is the lower starting ‘R’ rate, along with less elevated hospitalisation and death rates. “This means there’s good reason to believe measures will be effective more quickly,” he adds.

Of course some sectors – notably hospitality – could be hit much harder and fiscal measures such as wage subsidy schemes would need to be extended to soften the blow,” he continues. “Overall, in my view, the combination of large pent-up demand, high savings and massive fiscal and monetary stimulus means there is still potential for a strong recovery next year. But this is only on the condition that countries can get virus spread under control relatively quickly,” he concludes.

GE185780 EXP 6 February 2021

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