A string of business surveys showed on Friday that the European economy’s slump deepened in January, as tightened restrictions ordered to stem the tide of new coronavirus variants are taking their toll.
- The IHS Markit flash composite purchasing manager index for the eurozone fell in January and indicated for the third consecutive month that a majority of businesses reported a contraction of activity in the past month.
- A similar survey for the U.K. showed activity at an eight-month low in January. “The locked-down U.K. economy is on course to contract sharply in the first quarter of 2021,” said Chris Williamson, the chief business economist at IHS Markit.
- The pound was down 0.6% against both the dollar and the euro in early trading on Friday.
- The European Central Bank on Thursday kept its pandemic-focused asset- buying program unchanged with a ceiling of €1,850 billion ($2.2 trillion) and its key rate steady at minus 0.5%, but ECB President Christine Lagarde warned of headwinds ahead due to tighter restrictions across the region.
- European Union leaders decided on Thursday to keep borders open for now but agreed on new travel curbs, including the designation of “dark red” zones within Europe that would require travelers from these regions to undergo a test before departure and quarantine on arrival.
The outlook: With vaccination campaigns hindered by bottlenecks and shortages, the hope for a quick control of the new pandemic wave are slowly replaced by fears for a possible third wave. The end of restrictions seems further away than ever, worsening the economy’s slump.
That raises the question of whether or not European governments should and will implement new fiscal stimulus plans to counter the effects of the second wave. The EU and the U.K. for now live on plans devised last year to counter the effects of the first wave of the pandemic. They will prove insufficient to deal with the consequences of the current, unexpected spike.