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New recession drums in Europe: restrictions 'will bleed the start of 2021'

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The alarms sound again in the Eurozone. Experts already warn of a new recession in the Old Continent as a consequence of the restrictions that have been adopted for the Christmas in many countries to contain the contagions of Covid-19. These measures, they assure from ING, "will bleed the first quarter of 2021", so "the risk of another technical recession is increasing."

This is stated by the strategists of the Dutch bank in their latest report on the euro region, where they explain that the news about the mutation of the virus to a most contagious strain, confirmed by the United Kingdom, "not only have the risks of more closures increased, but also of stricter restrictions, which means that the second wave will dampen economic activity well into the first quarter of 2021."

The economy, says ING, has proven to be "quite resilient" so far, given that the measures that have been adopted have been "softer" than during the first wave, for example in industry. The problem, the bank notes, is that the latest restrictions, as well as the short-term effects on the supply chain of the temporary closure of EU borders with the UK And the long Christmas breaks, they keep pointing to a greater weakening of the manufacturing sector, which together with the new blow to the service sector due to the measures applied in the hospitality industry to stop the coronavirus, can be fatal for the economy.

And this without forgetting that it can still happen that the infections get out of control, because according to the experts of the entity, "the slower infection rates thanks to the closures in one country are followed by faster infection rates in others." Despite the fact that mobility data show that "the decline in population movement has been much less in the fourth quarter than during the first wave of the pandemic," and this should translate into a milder impact on the economy, It is true that the fall in GDP "is inevitable given the serious impact of partial closures."

THE DISADVANTAGE OF THE SOFTEST MEASURES

ING considers that it is a "disadvantage" that softer measures have been applied, because the result is that "the number of infections is not decreasing as much as expected". The cause? That there has been a "strong increase" in activity related to Christmas shopping in December – you just have to see the images that have been repeated in cities across Europe, with the streets crowded with pedestrians – and that is preventing the long-awaited reduction of contagions.

Thus, the Dutch bank is clear: "The risks of a technical recession increase". In his opinion, although the restrictions and closures decreed by the European countries will not have a similar effect to those of the first wave, precisely because they are more relaxed, "the impact will be significant and will drag the GDP figure for the fourth quarter much more towards the Red".

"With the virus mutating, and without the curve decreasing, the risk of broader and stricter restrictions beyond mid-January has clearly increased," ING also points out, which nevertheless remains optimistic about the medium-term prospects. for the euro zone economy thanks to the vaccine and monetary and fiscal stimuli, the approval of the new aid package in the US and the continuing "V" shaped recovery in Asia.

Despite the warnings, the bank's experts believe there is only "a high risk of another small downturn in the economy in the first quarter and therefore a technical recession." In fact, they assure that what will happen in 2021 is a "book" case. "Things will get worse first before they finally get better", they predict.

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