Eurozone economic recovery survives Omicron wave


The Omicron variant is causing far less damage to Europe’s economy than previous waves of Covid-19, according to an FT analysis of high-frequency data, thanks in large part to high vaccination rates and society’s improved ability to live with the virus.

Although infection rates in the euro zone have reached their highest levels since the start of the pandemic, cinema ticket sales, hotel reservations, job vacancies and mobility data have greatly dropped less than in previous surges caused by the coronavirus.

By this time last year, visits to shops, bars and restaurants had fallen more than 40% below pre-pandemic levels. This year, by contrast, visits have fallen by less than half that amount, according to Google mobility data.

“The economic impact of the pandemic is fading by the wave,” said Bert Colijn, economist at ING. “The relatively high levels of mobility are positive for economic activity.”

Line graph of percent change from the average of January 3 and February 6, 7-day moving average showing that visits to stores and restaurants have fallen much less than in previous waves

This is reflected in economists’ growth forecasts. Silvia Ardagna, economist at Barclays, predicts that despite Omicron, the bloc’s economy will still have grown by around 0.2% in the last quarter of 2021 and again in the first quarter of this year. It also expects “solid growth in 2022-2023 driven by domestic demand”.

There are also few signs that Omicron has significantly hurt the labor market, according to data from Indeed, a job search website. Eurozone unemployment had already fallen below its 2019 pre-pandemic average in November.

Unemployment will “fall to levels we’ve never seen before” in the eurozone, said Claus Vistesen, an economist at Pantheon Macroeconomics, who expects tight labor markets combined with the economic recovery could boost inflation, which hit a record high for the bloc of 5 percent in December.

Line graph of the % change in job vacancies since February 1, 2020, seasonally adjusted showing that the number of job vacancies in the euro zone continues to increase

Even so, exponentially rising infection rates have hurt economic activity as restrictions have forced people into self-isolation and limited public gatherings. This particularly affected consumer services.

In the first weekend of January, European cinema revenues in the EU’s four largest economies were around 20% lower than the same period in 2020, according to data from Mojo, a US website that tracks global box office sales. German restaurant reservations were also 30% lower in mid-January compared to the same period in 2019.

Likewise, tourism and international travel remain weak. The number of flights is down 35% from pre-pandemic rates in 2019. Hotel bookings have also fallen back to levels last seen in spring 2021, according to data from Sojert, a digital marketing platform. .

Nonetheless, this is a marked improvement from the same period last year, when bookings fell much more.

Line chart of 7-day moving average, % change from same week in 2019 showing number of flights dropped

Analysts say one difference with this wave is that restrictions – such as the Covid-19 passes required in countries like France and Italy to access hospitality and leisure venues – largely target the unvaccinated and those who have not already fallen ill. Since they are a minority, the rest of the economy can remain open.

“Covid cases have increased across Europe, restrictions have been enforced and mobility has declined,” said George Buckley, economist at Nomura. “Nevertheless, there are reasons for optimism,” he added, predicting a rapid recovery in the spring.

Analysts said another reason for the lesser hit to economic activity this year was that hospitalization and death rates were rising much less than infections. In 2021, much lower infection rates have pushed the Eurozone into recession.

Jack Allen-Reynolds, an economist at Capital Economics, expects “the current wave of infections caused by Omicron to run out faster than previous waves, allowing for an easing of restrictions in February.”

Indeed, this week France announced that it would start easing Covid-19 restrictions from next month, as the wave of infections had peaked in the Paris region and is expected to soon do the same in the rest of the world. country.

Better times are also predicted for manufacturers. Daily German data on truck mileage, an indicator of industrial production, rose above November levels in a sign that China’s zero Covid policy has yet to affect global manufacturing supply chains.

Even in the event of a supply disruption, higher inventory levels mean factories should be able to ride out shortages more easily than before, said Paul Donovan, chief economist at UBS Global Wealth Management.

“Overall, Omicron is likely to be far less disruptive than previous waves of the pandemic,” he said. “People have learned to adapt and that minimizes a lot of damage.”


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