Eurozone economic recovery is surviving Omicron wave


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

Although infection rates across the eurozone have risen to their highest levels since the pandemic began, cinema ticket sales, hotel bookings, job postings and mobility data have fallen far less than in previous surges caused by the coronavirus.

Line chart of '000, rolling 7-day average showing The eurozone is experiencing an unprecedented surge in Covid-19 cases

This time last year, visits to shops, bars and restaurants had dropped more than 40 per cent below pre-pandemic levels. This year, by contrast, visits have dropped 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 chart of % Change compared to average of Jan3 and Feb 6, rolling 7-day average showing Visits to shops and restaurants have fallen far less than in previousl waves

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

There is also little sign that Omicron has significantly hurt the jobs market, according to data from Indeed, a job search website. Eurozone unemployment had already dropped in November to below its pre-pandemic, 2019 average.

Unemployment is “going to fall to levels that we haven’t seen before” in the eurozone, said Claus Vistesen, economist at Pantheon Macroeconomics, who expects that tight labour markets combined with economic recovery may boost inflation, which hit a record high for the bloc of 5 per cent in December.

Line chart of % change in job postings since 1 Feb 2020, seasonally adjusted showing Number of eurozone job vacancies continues to rise

Even so, the exponential rise in infection rates has hurt economic activity, as restrictions have forced people to self-isolate and limited public gatherings. That has especially hit consumer services.

In the first weekend of January, European cinema revenues in the EU’s four biggest economies were about 20 per cent below the same period in 2020, according to Mojo data, a US website that tracks global box office sales. German restaurant bookings were also 30 per cent lower in mid-January than at the same time in 2019.

Likewise, tourism and international travel remain weak. Flight numbers are down 35 per cent compared to 2019’s pre-pandemic rates. Hotel bookings have also fallen back to levels last seen in the spring of 2021, according to Sojert data, a digital marketing platform.

Nonetheless, that is a marked improvement on this time last year, when bookings fell by far more.

Line chart of Rolling 7-day average, % change compared with same week in 2019 showing Flight numbers have dropped

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

“Covid cases have risen across Europe, restrictions have been applied and mobility has fallen,” said George Buckley, economist at Nomura. “Still, there are reasons to be optimistic” he added, forecasting a rapid recovery in the spring.

Analysts said that another reason for the smaller hit to economic activity this year was that hospitalisation and death rates are rising far less than infections. In 2021, much lower infection rates dragged the eurozone into recession.

Jack Allen-Reynolds, economist at Capital Economics, expects “the current wave of infections caused by Omicron will burn out more rapidly than previous waves, allowing restrictions to be eased in February”.

Indeed, this week France said it would start to ease Covid-19 restrictions from next month as the wave of infections had peaked in the Paris area and were expected to do the same soon in the rest of the country.

Better times are forecast for manufacturers, as well. Daily German data on truck mileage, a proxy for industrial production, has risen above November levels, a signal that China’s zero-Covid policy has not yet affected global manufacturing supply chains.

Even if there are supply disruptions, higher inventory levels mean factories should be able to ride out any shortages more easily than before, said Paul Donovan, chief economist of UBS Global Wealth Management.

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



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