Europe’s Mobility Is Now Its Weakness

A second wave of infections is undermining Europe’s economic comeback

Umbrellas crowding a European beach
Photo by Raphael Nogueira on Unsplash

Europe was the hopeful continent. Emerging from the depths of the pandemic with enviable economic figures and a quick, effective fiscal response from EU leaders, Europeans had all but put the virus behind them. Economies were beginning to open, schools were back in session, and restaurants were welcoming customers through their doors. In signs of lockdown fatigue, EasyJet announced it would schedule additional flights to meet better than expected demand during the European summer.

German researchers even staged a concert in a Leipzig arena, using volunteers equipped with contact tracers to understand how the virus is transmitted under different social distancing measures. Rather than resort to harsher lockdowns, the European approach is to let people go about their lives as safely as possible. When thousands of people marched through the streets of Berlin to protest restrictions and mask-wearing, the police were in no hurry to send them home, and the condemnation from political leaders was like being flogged with a warm lettuce.

Mobility is one of the great European virtues. It is also a right enshrined in the European treaties, which grant EU citizens the right to move freely through the Union’s internal borders. Restricting travel and closing borders is especially hard for Europeans to stomach. Even when confined to their own towns, Europeans are not content to sit at home. According to the Ifo Institute, an economic think tank based in Munich, German bicycle retailers are among the biggest winners of the corona economy. “Bicycle retailers are experiencing a genuine boom,” said Klaus Wohlrabe, Head of Surveys at Ifo. If they cannot fly or drive, Europeans will walk or ride to satisfy their perambulatory lifestyle.

According to Google’s Covid-19 community mobility reports– aggregated data that tracks how our shopping, work, and recreational habits have changed during the crisis–German consumers are behaving much the same as they did before the pandemic hit. Germans are out and about, visiting restaurants, shopping centers, theme parks, museums, libraries, and cinemas as if nothing happened. In France, visits are up 4 percent on the baseline (measured as the median value from the five‑week period from 3 January to 6 February). In Germany, visits to parks are up a massive 104 percent. In contrast, in the United States, retail and recreational visits are still down by 14 percent on the baseline. According to Google’s all-seeing eye, Europeans are getting outside more than they did before the pandemic.

So far Europe has been a victim of its own success. EU countries have been relatively successful in containing the Covid-19 virus and providing much-needed fiscal support. In July, the European Council approved a €750 billion package to fund fiscal transfers between member states. Since March, the euro has been on the rise against the US dollar as investors see European assets as increasingly attractive. In Germany, June quarter GDP for the June quarter fell 10.1%, worse than the expected 9.0% fall, taking the year-on-year rate to -11.7%. But incredibly, Germany’s unemployment rate held steady at 6.4%, with a surprise jump in employment of 18,000. Europe-wide, measures of economic activity and business confidence improved month after month, pointing to a rapid recovery and indicating that the worst was now behind.

All this positive news reinforced Europe’s strategy and allowed leaders to relax when it came to the continent’s biggest indulgence: movement. However, it was only a matter of time before fears of a second wave overshadowed Europe’s Wanderlust. Europe may have been the face of the recovery, but now it is the canary in the coalmine whose fate could well become that of other regions. Following the rapid improvement since March, key indicators are now slowing, taking the wind out of Europe’s sails. Business confidence is starting to fray while economic activity is slowing, especially in the services economy. The key reason for this loss of momentum is undoubtedly the rise in infections–the inevitable result of Europe’s travel obsession.

The slowdown is most evident in the latest purchasing managers’ index (PMI) survey results. The IHS Markit flash PMI for the eurozone fell to 51.6 in August, down from 54.9 in July. While it is still holding above the key 50 mark that indicates a majority of businesses reported an expansion in activity, it has slowed significantly. After the rapid recovery through May, June, and July, Germany’s PMI sank from 55.3 to 53.7 points. In France, where economic activity has fallen even more strongly that in Germany, the index fell nearly six points to 51.7.

The European recovery lost its dynamism in August, and it is clear the coronavirus pandemic is still having a profound effect on demand. Rising rates of infection in many eurozone countries have dampened expectations, especially in the retail sector, which is suffering under new restrictions. Europe is under threat from a second wave of Covid-19 infections, with the French government’s Covid-19 scientific council stating: “The balance is fragile and we can change course at any time to a less controlled scenario like in Spain.” Britain’s health secretary said:

“I think you can see a second wave starting to roll across Europe, and we’ve got to do everything we can to prevent it from reaching these shores.”

While the services sector has been hit hard by flagging consumer confidence, the only bright spot for the European economy is manufacturing. In Germany, the production sub-index rose from 54.7 to 59.1 points, reaching a 30-month high. New orders increased at their fastest rate in two and a half years, albeit from a low base. Overall, however, German manufacturing activity remains depressed, and this is creating enormous cost pressures for companies. After bouncing back sharply, the European economy is struggling under the weight of uncertainty. The longer the crisis drags on, the harder it will be for a true, sustainable recovery to take hold. At the very least, the possibility of a V-shaped recovery is now a pipe dream.

Europe will do what it can to remain the mobility center of the world, but this is taking its toll. German chancellor Angela Merkel said:

“We want to avoid closing borders again at any cost, but that assumes that we act in co-ordination.”

French President Emmanuel Macron said:

“We cannot shut down the country, because the collateral damage of confinement is considerable.”

But businesses can already see where things are heading. Across Europe, Covid-19 is still spreading, pouring cold water on hopes of looser restrictions. In some countries, measures have already been tightened. Businesses are starting to lose hope, replacing cautious optimism with a sense of fatalism. Consumers are carrying on, but they refuse to spend with abandon as if the crisis will inevitably fade.

The economic mood in Europe is mixed. The worst of the crisis has likely passed, but Europeans know from experience what follows. They fear the return of the great stagnation that plagued Europe for a decade after the financial crisis. Even if they regain their freedom of movement, there is nothing to guarantee stable and persistent economic growth.

Europe’s Mobility Is Now Its Weakness was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

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