Europe’s second wave to infect global recovery: Fitch

Renewed lockdowns in Europe in response to the second wave of Covid-19 will weigh on the global economic recovery, says Fitch Ratings in a new report.

The rating agency said that global GDP bounced back more quickly than expected in the third quarter, but that a return to economic restrictions in Europe due to rising infection rates will disrupt not only that region’s recovery but also have knock-on effects for the global economy.

“A weaker European recovery will weigh on world growth next year,” Fitch said.

Fitch said that the imposition of new lockdowns in France, Germany and the UK, along with tighter restrictions in Italy and Spain, will significantly affect output in the European services sector.

As a result, the rating agency now expects eurozone GDP to fall around 4% in the fourth quarter.

“The latest lockdowns are planned for four weeks but we assume new restrictions will only be phased out gradually over the winter months,” the agency said.

The economic impact of these latest restrictions aren’t expected to be as significant as they were in the first wave of the pandemic.

“With schools remaining open, manufacturing and construction activity set to continue in France, starting levels of activity already depressed and recent experience gained in working and spending through lockdowns, the impact on daily activity is likely to be less severe than in the spring,” said Brian Coulton, chief economist at Fitch.

Additionally, the rating agency said that it expects eurozone GDP to “recover quite sharply next spring.”

While the situation in Europe will weigh on the global recovery, Fitch said that its forecasts for China and U.S. in 2021 are unchanged.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.