Europe emerges: the different approaches to lifting lockdown and what this means for business
As the UK continues lift their quarantine sanctions, we look to Europe to understand what this period of the ‘new normal’ will look like for us.
Europe has been one of the hardest-hit continents by the Covid-19 pandemic. Since the first case was reported in France on the 29th of January, the infection rate has snowballed - to date over 3 million cases have been confirmed since the virus hit European shores. In a bid to save lives by halting the spread of the virus, many governments responded by closing national borders and placing their citizens under strict lockdowns. This not only suspended the everyday lives of millions of people, but also slammed the breaks on the continent’s economy, creating ripples throughout almost all sectors of business, and plunging the eurozone into a record postwar contraction.
However, as most European countries have been able to get the ‘R’ rate down to 1 (meaning that a person with Covid-19 is, on average, infecting less than one person), lockdown restrictions are increasingly being lifted, and many people are beginning to tentatively resume their normal way of life. With no one-size-fits-all approach to emerging out of such a national and global crises, countries across Europe are all adopting very different styles of reintegration, and these different response strategies all undoubtedly come with their own unique social and economic consequences.
As the UK continues to cautiously lift their own quarantine sanctions, it’s important to learn lessons from our European neighbours, so we can understand what this period of the ‘new normal’ will look like for us. To understand this we need to take a closer look at how different European countries are choosing to come out of the lockdown period, before analysing the reverberations that these strategies are having on different sectors of business.
Widely understood to have handled the Covid-19 pandemic in a relatively calm and assured way, Germany’s strategies for exiting lockdown have been criticised by many for being chaotic and overly hasty. As a result of pressure from regional leaders, the German Chancellor, Angela Merkel, was forced to lift regulations faster than she would have liked, which also led to inconsistent regulations across many German states. The Chancellors fear was echoed by the chair of the World Medical Association, Frank Montgomery, who claimed these changes were being made ‘too soon’ and that Germany was ‘easing up too fast and too much’, which could risk a second wave of infections.
However, despite the widespread anxieties around lifting lockdown measures, the gradual opening of the economy has offered a glimmer of hope for many businesses that have been suffering under the state-imposed quarantine. According to a monthly survey of 9,000 German companies by the IFO Institute in Munich, the main business climate index rose to 79.5 in May, up from a record low of 74.3 in April. Also, the survey predicts that all business sectors in Germany will see an improvement in the next six months; Andrew Kenningham of Capital Economics verified this by stating he expects a rebound in German GDP in the current, third quarter of the year.
A significant reason why Germany has appeared to suffer less in comparison to its European neighbours is that its economy is less dependent on the tourism sector, and therefore is less impacted by the lack of inbound visitors. Also, Germany’s trade and domestic-focused services sectors appear to be making steady comebacks, which is no doubt linked to the boost of consumer spending that has been brought about by the earlier easing of lockdown restrictions.
However, despite this relatively positive picture, industrial sectors still remain a long way behind. With Germany still reeling from it’s biggest dip in the economy since wartime, it’s going to be a while until numbers will return to pre-crisis levels, and businesses will be able to flourish.
Standing as the first European country to be severely hit by the coronavirus, Italy imposed a strict and lengthy lockdown that started much earlier than it’s neighbouring countries. Italy’s northern territories were affected first, and, as a consequence, these areas were the first to be locked down, with regulations quickly spreading to the rest of the country.
The Italian economy had already been weakened by the eurozone crisis and decades of austerity; as a result, the sudden and severe impact of Covid-19 plunged Italy into a sobering economic reality. For this reason, the government has decided to take a ‘calculated risk’ to open up key sectors of business like tourism and trade, as the country’s economy can’t afford to wait for a vaccination to be found.
This ‘calculated risk’ strategy has seen many public spaces open up and a large number of workers return to their places of work, albeit adhering to strict social distancing measures. This widespread return to ‘business as normal’ has appeared to boost business in a variety of sectors. One sector in particular that has benefited is manufacturing, with the National statistics institute reporting that industrial output has witnessed an increase of 42.1% between the months of April and May.
However, despite decent economic and financial recoveries in certain sectors, the outlook for many Italian businesses is still bleak. As Italy’s manufacturing industry relies heavily on a network of small interdependent local businesses, until an equal growth in these businesses is achieved, it will be hard for Italy’s economy to take larger strides forward.
In addition to this, with the somewhat hasty lifting of regulations, many fear a second spike of Covid-19 cases is around the corner. If this is the case, it could result in a second lockdown which would set back the economy even further and severely damage the recovery of many small and medium-sized businesses.
France was also heavily hit by the impact of the coronavirus, and the French government’s response was to implement a lockdown that was stricter than its European counterparts. All residents were required to provide a travel permit on any outdoor trips from the 17th of March, and restrictions only began to ease up on the 11th of May. After the number of new Covid-19 cases continued to drop in this period, and the whole of the country was considered a ‘green zone’, French President Emmanual Macron declared the state had won its ‘first victory against the virus’ and more measures were lifted on the 14th of June.
Currently, the virus appears under control in France, so Mr Macron’s ongoing priority is to relaunch the economy to make it “strong, environmental, sovereign and with solidarity”. This includes releasing €300bn in economic support to provide relief to struggling businesses, which is hoped to increase public spending and prompt knock-on effects to other sectors. As a result of these initiatives, combined with a slow but steady re-opening of public spaces, predictions are that the French economy is set to rebound sharply in the second half of 2020. This is providing hope to the French nation, which is currently in the midst of its biggest recession since modern records began.
However, despite the continued easing of lockdown restrictions and the renewed focus on rebuilding the French economy, the nations tourism, construction, and manufacturing industries have been hit hard by Covid-19. Combined with the fact that conditions for restarting work are tougher, it’s unlikely that the French economy will be fully back to normal for a long time, and many small and medium-sized businesses will struggle to recover before well into 2021.
Denmark was one of the first countries in Europe to impose a lockdown, enforcing restrictions before any Covid-19 cases were even confirmed. Their thorough and swift handling of the crisis meant that they were able to curb the spread of the virus reasonably effectively, and it was therefore safer for them to lift regulations before many other of their neighbouring countries.
With hairdressers and salons opening up on the 20th of April, and cafe’s and restaurants following suit on the 18th of May, the loosening of lockdown measures has led to a boom in the service industry, with Denmark’s main booking site for hair appointments actually crashing a few hours after salons were announced as open. This recent boost in the retail and service industries will likely prove to be very useful in shaping the overall economy, as throughout the lockdown period there was a 25% dip in consumer spending. However, if life returns back to normal too soon, Denmark could risk a second surge of cases, which would only elongate the social and economic ramifications felt as a result of the Covid-19 pandemic.
In addition to the slow but steady growth in consumer spending, the Danish government has also introduced a €5.4 billion scheme that is focused on compensating companies that have seen a decline in revenue of over 40% due to the virus. This initiative pays a maximum of €8 billion per company and is targeted at mitigating the damage on Danish businesses to help facilitate a speedier and more even economic recovery.
Due to all of these measures, and because Denmark was in a relatively economically stable pre-coronavirus, the nation’s economy is on track to rebound the second fastest out of any European country. All of this has also been achieved despite an early and comprehensive lockdown strategy in March.
Spain was been hit particularly hard by the Covid-19 pandemic and went into one of Europe’s toughest lockdowns in mid-March. The nation’s heavy reliance on the market services, arts, and tourism sector meant that its economy was particularly vulnerable to small businesses being shut down and international borders being closed. This, alongside the immediacy and extent of the lockdown, caused the Spanish economy to shrink 34% within the first two weeks of the lockdown.
With 12% of Spain’s total GDP reliant on the tourism, the nation was pressured to lift the state of emergency on June 21st to open up the borders and to reinstate people’s freedom of movement. Although this successfully reinvigorated Spain’s suffering tourism economy, the premature lifting of guidelines also appeared to prompt a surge of Covid-19 cases, especially in the cities of Barcelona, Zaragoza, Madrid. With the threat of a second wave currently looming over Europe, there are fears that returning back to normality too quickly will not only hamper economic progress but also contribute to an increasing number of preventable and tragic fatalities.
What does this mean for the UK?
With the UK going into it’s third and final phase of lifting lockdown restrictions on the 4th of July, the reality of Covid-19 seems to be slowly slipping out of public consciousness. Today, the proportion of the population that thinks coronavirus is the most important issue facing the country today has fallen by around a fifth. However, due to 1536 cases being recorded in the week leading up to the 27th of July, more regulations are being introduced to try and mitigate the continued spread of the virus. These include facemasks being compulsory in more indoor locations from the 8th of August, and additional restrictions being placed on those living in Greater Manchester, West Yorkshire, and some areas in East Lancashire and Leicester.
However, some people still argue that these restrictions aren’t going far enough. Michael Baker, the public health expert who advised New Zeland on its coronavirus response, criticises the European and the US strategy of trying to mitigate the virus by increasing controls when it appears to be worsening. He pointed out that imposing a stricter lockdown for four more weeks was what the UK needed before it would be able to eradicate the virus, which would then lead to the economy slowly but surely improving, without an inevitable increase in cases. This strategy takes heed from other models implemented in Asia and New Zeland, where the social and economic impact of Covid-19 has been relatively limited in comparison with Europe.
As pressure falls on Boris Johnson to reopen the economy the question is: will the UK follow the pattern of the other European countries who lifted their lockdowns too prematurely, or will our government admit that to take two steps forward, we may need to take one step back first?
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