With many parts of Europe currently experiencing a winter resurgence in COVID-19 cases and restrictions, analysts at Swiss Re have assured that this latest wave of the pandemic represents a less severe threat to economic activity than previous ones.
The reinsurer’s optimism primarily stems from higher population immunity in affected countries, as well as stronger growth and labour markets, and better familiarity with virus measures among businesses and consumers.
In recent weeks, a number of countries including Germany, Austria and the Netherlands have reported record highs in the daily count of new COVID-19 cases, and hospitalisations are rising.
In response, many nations have introduced further restrictions, ranging from familiar measures such as masks and lockdowns, to new experiments with vaccine passports.
Meanwhile the Omicron variant has triggered a surge in uncertainty globally and sovereign bond yields have slumped amid growth slowdown fears.
But Swiss Re notes that Europe is entering the latest wave at a time when economic momentum is strong, with governments seemingly ready to provide more fiscal support should the situation deteriorate.
“The link between economic activity and mobility restrictions has weakened over time as Europe has adapted to living with the virus,” Swiss Re analysts stated. “Companies are better operationally equipped (eg, working from home set-ups) and have adapted business models (eg, restaurants into food shops), while consumers have adjusted (eg, e-commerce; lower risk aversion to the virus than previously).”
“In our view, any tightening of restrictions will be less disruptive to euro area GDP this time. In addition, vaccine passports and mandates, reduced hours and capacity limits will allow services to continue to operate, albeit more conservatively.”
That said, Swiss Re warned that further tightening of restrictions is unlikely to trigger a repeat of the shift in consumer demand from services to goods that was seen during previous waves.
And if consumers save rather than redirect their spending, economic growth is likely to be disappointing.
Looking ahead, Swiss Re is keeping its Euro area real GDP growth forecast for next year unchanged at 4.1%, below consensus, and the inflation impact remains ambiguous.