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Europe faces an economic winter as the virus returns

Europe is now grappling with a second wave of coronavirus infections that could once again wreak significant damage on the region’s economy. The euro zone, the area that shares the single currency, saw its economy tank by 11.8% in the second quarter of 2020, hit by strict lockdown measures used to contain the spread of the virus. Economists predicted a rebound in the second half of 2020 but are now questioning those forecasts. Many governments are announcing new lockdown restrictions, or a slowing of reopenings, as they deal with a significant uptick in cases.

There is a “big risk of a double dip” in the fourth quarter, Chris Williamson, the chief business economist at IHS Markit, told CNBC’s “Street Signs” on Wednesday. Data out this week showed that the recovery has stalled in the euro zone in September. The flash euro zone PMI (purchasing managers’ index) composite index — which measures both manufacturing and services — stood at 50.1, just marginally pushing into expansion territory. This latest preliminary number points to a three-month low in economic activity for the region. “As we head through to (the) fourth quarter, there’s obviously a lot more restrictions in place and that’s really going to curb growth,” Williamson added.

Concerns on the economic shock of further restrictions sent European equities into sell-off mode earlier this week. “The pandemic poses the key risk to our call for a tick-shaped recovery from the March/April plunge in economic activity,” Holger Schmieding, chief economist at Berenberg said in a note Tuesday. “The risk is rising.”

The flash composite index for the U.K. came in at 55.7 in September, new data out on Wednesday showed. This was a three-month low and highlighted that the economic recovery has also started to lose momentum on the other side of the English Channel. British scientific advisors have said there could be 50,000 new infections a day by mid-October and Tuesday’s announcements by Prime Minister Boris Johnson were seen as a direct response to those stark warnings.

Europe faces an economic winter as the virus returns, CNBC, Sep 24

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