SIM Report: Western & Northern Europe, Issue 3

REGIONAL: Europe faces devastating economic impact from COVID-19 outbreak  

For fragile European economies, the coronavirus (COVID-19) pandemic poses serious risks that could leave long-lasting consequences. In the last week, governments across the continent have sought to respond by unveiling billions of euros in emergency funding and additional support for businesses.

So far, the economic impact has been particularly acute in northern Italy, the epicentre of the outbreak in Europe, which has also emerged as a new vector for transmission to countries within the EU and beyond. On 9 March, Italian Prime Minister Giuseppe Conte announced nationwide travel restrictions, preventing people from leaving their homes unless for work-related or health reasons in a bid to contain an ongoing coronavirus (COVID-19) outbreak. Public venues, schools, and universities will remain closed from 10 March until 3 April. Indeed, Italy has become increasingly isolated as it seeks to mobilise sufficient resources to deal with overcrowded hospitals in the worst-hit northern municipalities. Travel restrictions introduced on 8 March and extended on 9 March to cover the entire country have accentuated the disruption to economic activity, particularly in prosperous northern regions, including Lombardy and Veneto, where the majority of infections are concentrated. Sectors affected include agriculture and manufacturing where on-site workers are essential.


 

Some countries have sought to shelter their populations from COVID-19 by introducing controls at borders or shutting them altogether. On 12 March, the Czech Republic shut its borders to travellers from 15 countries, including France, Germany, and the UK, while Slovakia announced the closure of borders for all foreign visitors, except Polish nationals. Beyond severely restricting cross-border travel, the closures will also harm companies with integrated supply chains in the region.  

Anticipating the economic blow COVID-19 will bring, governments have sought to proactively respond to the outbreak. For instance, on 11 March, the Bank of England (BoE) announced an emergency decrease in interest rates from 0.75 per cent to 0.25 per cent to soften the economic blow of the ongoing coronavirus (COVID-19) outbreak. The BoE also said it would make available billions of pounds to help banks support struggling businesses. On 9 March, UNCTAD – the United Nations trade and development agency – said the COVID-19 epidemic will cost the global economy USD1 trillion in 2020. The impact on the Europe’s economic performance will be reflected in GDP growth forecast estimates.

Industries that will be disproportionally affected include car manufacturing, luxury goods markets, and the tourism sector. Consumer spending patterns will resemble those in China at the height of the outbreak there, where increasingly health-conscious buyers shifted their spending towards medicines and personal hygiene products. Conversely, uncertainty over how long the COVID-19 outbreak will last means that the travel and aviation industries will experience long-term impact. According to industry body the Global Business Travel Association (GBTA), the international business travel market will lose an estimated USD820 billion due to COVID-19.

The economic impact of COVID-19 in Europe will largely depend on whether the number of cases grows exponentially. There is growing recognition among EU leaders that infections will continue to increase before cases plateau and eventually decrease. Businesses should assess the exposure their assets and staff have to the pandemic. Contingency plans should be regularly reviewed and updated to reflect the latest advice and updates from relevant governments.   


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