Europe’s Economic Recovery Is a Summer Memory

Europe’s Economic Recovery Is a Summer Memory

LONDON — What faint hopes remained that Europe was recovering from the economic catastrophe delivered by the pandemic have disappeared as the lethal virus has resumed spreading rapidly across much of the continent.

After sharply expanding in the early part of the summer, Britain’s economy grew far less than anticipated in August — just 2.1 percent compared with July, the government reported on Friday, adding to worries that further weakness lies ahead.

Earlier in the week, France, Europe’s second-largest economy, downgraded its forecast for the pace of expansion for the last three months of the year from an already minimal 1 percent to zero. Over all, the national statistics agency predicted the economy would contract by 9 percent this year.

The diminished expectations are a direct outgrowth of alarm over the revival of the virus. France reported nearly 19,000 new cases on Wednesday — a one-day record, and almost double the number the day before. The surge prompted President Emmanuel Macron to announce new restrictions, including a two-month shutdown of cafes and bars in Paris and surrounding areas.

But most economists assumed that better days would last only so long as the virus could be contained. Restrictions imposed by governments appeared less important than the willingness of consumers to interact with other people, returning to workplaces and shopping areas.

In a report this week, Oxford Economics, a research institution in London, analyzed data across the eurozone, noting that much of the improvement in the late summer was the result of factories springing back to life after shutdowns. For expansion to continue, people have to buy the products the factories are making. The willingness to spend is influenced by confidence — whether people feel safe enough to move about; whether they fear they could lose their jobs.

By September, as coronavirus cases climbed anew, consumption was falling off.

“With the health situation unlikely to improve in the near term, we expect the recovery to slow again over the next few weeks,” concluded the report, which was written by Moritz Degler, an Oxford Economics senior economist.

But the rapidly deteriorating economic outlook has forced Mr. Sunak to go back to the well. On Friday, in anticipation of tighter limits on businesses, he announced a new furlough program that would cover two-thirds of wages at businesses that are required to shut down as virus cases increase rapidly, and that would also increase grants. The measures could be particularly significant in industrial areas in the north of England, where a surge of electoral support for the Conservative Party in last year’s elections helped keep Mr. Johnson in office.

Fears of diminishing fortunes in Britain have been amplified by the possibility that the nation could crash out of the European Union at the end of the year — completing the tortuous process of Brexit — absent a deal governing future trade. That would risk job-killing chaos, especially at ports.

On the other side of the English Channel, the fall has brought a realization that complex hurdles remain before the European Union’s relief fund can be administered, limiting prospects in the worst-hit countries like Spain and Italy.

The Spanish prime minister, Pedro Sánchez, on Wednesday announced a stimulus spending plan worth €72 billion ($85 billion), with four-fifths of the money planned to come from the European fund.

Spain may have to wait for that money. The fund is supposed to be operational by January, yet almost certainly will confront delays as European Union members debate conditions on its distribution — especially rules aimed at forcing Hungary and Poland to abide by the democratic norms of the bloc.

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