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COVID-19 could bring Europe’s economy into a tailspin again

DENMARK / COPENHAGEN _ Flag of the European Union, gold stars and blue sheets fly over Copenhagen … [+] Today January 14, 2012 (PHOTO BY FRANCIS JOSEPH DEAN / DEAN PICTURES) (Photo by Francis Dean / Corbis via Getty Images)

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The specter of COVID-19-related lockdowns has raised its ugly head again in Europe. And they could spin the continental economy into a tailspin, experts say.

Last week’s news that Austria would impose a full lockdown across the country has some commentators feared the government’s urge to control the population will spread across the continent.

“Europe’s economy could be hit this winter if the larger countries follow Austria’s example,” says a recent report by the London-based financial consultancy C -ital Economics. “Then stagnation or even contraction are plausible.”

For Austria, a three-week lockdown would reduce GDP growth by 1.5% in the fourth quarter, the report said. If the lockdown lasts longer than the suggested three weeks – a real likelihood given how governments have behaved over the past two years – then expect a bigger impact on the economy.

A lockdown for Austria alone would have little impact on the EU economy. According to the C -ital report, EU growth is likely to be affected by around 0.1%.

The real concern, however, is that other national leaders are jumping on the lockdown bandwagon. You did this a year ago so don’t neglect the idea.

At the top of the economists’ list of lockdown concerns must be Germany, the fourth largest economy in the world and the largest in Europe. This c -ital report explains the matter:

  • “The federal government announced this week that it would restrict access to public spaces for unvaccinated people in regions where hospitals are most exposed.”

This partial lockdown could just be the beginning. The country’s health minister won’t rule out a nationwide lockdown, the report said.

All of this is bad, but it comes from what is probably already lackluster economic growth in the single currency area, also known as the euro area. “We expect the Eurozone Flash Composite PMI to decline again in November, to its lowest level since March,” the report said.

Worse, the composite purchasing managers’ index, which measures private sector health in the euro area, could come dangerously close to a contraction for November as it stands. The c -ital report expects a value of 52 for the PMI; Below 50 indicates a contraction.

The lockdowns in Germany or elsewhere on the continent would make matters worse.

“We expect growth to slow down in the fourth quarter” [the fourth quarter] since supply disruptions, high natural gas prices and rising Covid cases are burdening the economy, “says the C -ital report.

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