Europe’s economic recovery could slow amid Delta variant


LONDON, UK – 2021/07/27: Women shield themselves from the rain under an umbrella as they walk past a sign in a store.

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LONDON – European consumers are showing more reluctance to spend money this summer, and it could hurt economic recovery from the Covid-19 shock, experts told CNBC.

The behavior marks a stark contrast to last year, when there was a sense of seizing the moment after the first Covid lockdowns in the region were lifted. Now consumers fear living with Covid-19 longer than expected and are adjusting their attitudes accordingly.

“Because [the pandemic] has been going on for about 18 months, we got used to working from home and [are] more cautious about spending, “Marchel Alexandrovich, European economist at investment bank Jefferies, told CNBC on Monday.

Consumers are particularly skeptical of attending crowded events, according to Paul O’Connor, UK-based multi-asset team leader at Janus Henderson.

There are areas where we see continued consumer caution.

Paul O’Connor

head of the UK multi-asset team at Janus Henderson

Speaking to CNBC on Monday, O’Connor said there had been “steady improvement” in some economic indicators, such as the number of people using public transport, shopping and even going to the gym. “But there are some areas where we are seeing continued consumer caution,” he added.

A survey published in July by Ipsos Moris showed that 40% of UK consumers were not yet comfortable going on holiday abroad. Over 40% of those polled also said they were uncomfortable attending large public gatherings such as sporting or musical events.

In addition, “the return to work has been very hesitant,” said O’Connor, despite the easing of Covid restrictions in the UK and elsewhere in Europe. This has an impact on the “economy around the office,” such as coffee shops, he added, as people opt for a hybrid work model, spending most of their time at home.

The root causes

This consumer behavior is influenced by both government legislation and the evolution of the pandemic.

Alexandrovich gave the example of some “hesitant” consumers who do not leave their homes before going on vacation to avoid being in contact with someone who has the virus.

In the UK, for example, if you come into contact with someone who tests positive for the coronavirus in the following days, you must self-isolate for 10 days – even if you are fully vaccinated (at least for now).

Meanwhile, the highly transmissible Delta Covid variant has led to an increase in infections in recent weeks.

“Evidence from the UK suggests that the increase in the number of cases is hampering economic activity as people refrain from taking full advantage of the reopening,” economists at Pantheon Macroeconomics said in a note in July.

As a result, this economic consultancy slightly lowered its growth expectations in the UK in the third quarter. “We believe forecasters will have to consider the same in Europe soon, especially those entering the third quarter with a baseline that (eurozone) GDP will jump 3%,” they wrote.

Data released on Friday showed the eurozone advanced 2% in the second quarter of this year, recovering after two consecutive quarters in negative territory.

Although many economists are optimistic about the eurozone economy in the coming quarters, they describe it as “cautious optimism”.

“The increase in the ‘delta’ variant of SARS-CoV-2 infections across Europe in June and July increased the risk that the ongoing lifting of restrictions could be significantly delayed,” Berenberg analysts said. in a note last week, although they did note that the number of new infections appears to be increasing in the 19-member block.

A waiter wearing a face mask serves customers at a restaurant in Leadenhall Market in the City of London on July 27, 2021.

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Bert Colijn, senior economist at ING, also said in a note last week that “looking to the future [the third quarter]Note that the Delta variant is delaying the easing of restrictions and supply chain issues continue to weigh on manufacturing output.

Momentum could be affected by other factors as well.

“Growth in most major economies is expected to slow over the next few quarters,” said Neil Shearing, group chief economist at Capital Economics on Monday.

“But the main reason is that most economies have already recovered much of their lost output,” he added, arguing that this will likely happen in the UK and the euro zone later this year.


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