Record growth of the EMU economy in the third quarter, but the winter is coming!

After the cross-border lockdown due to the corona crisis in spring sent the euro zone economy into a tailspin, the summer months saw a rapid upturn. Driven by catch-up effects, EMU gross domestic product grew by 12.7 percent quarter-on-quarter between July and September. In the second quarter, the record minus was still -11.8 percent. The picture is similar in all major countries in the euro zone: in Germany, growth compared with the previous quarter was 8.2 percent, in Italy 16.1 percent, in Spain 16.7 percent and in France as much as 18.2 percent. Previously there had been historic declines in each of these countries.

As impressive and pleasing as these reports are, they are already history, as new adversity is looming again in the final quarter. Winter is coming, and with it the number of infections is rising. New precautionary measures lead to (partial) lockdowns in several countries. Although the severity and scope of the spring is to be avoided, the political decisions are nevertheless slowing down economic activity. After all, schools will remain open as far as possible and the economy should be able to continue to operate in large parts. Nevertheless, numerous service sectors will be almost completely shut down again: These include gastronomy, accommodation, culture, leisure and events. The aim is to break the new wave of infection in order to keep the burden on the health system within limits.

In October, numerous countries tightened their precautions. Since mid-October, the Netherlands and Ireland have been in partial lockdown. In France, Italy and Spain, this has so far only affected individual regions, but more parts follow in a weekly cycle and the severity of the measures is increasing. These include restrictions on private contacts and night-time curfews. Germany has also imposed far-reaching restrictions for four weeks starting on November 2.

In our view, this will result in a massive slowdown in gross domestic product in the fourth quarter, with a further decline to be feared. And there is no sign of a radical improvement in the first cold months at the beginning of 2021 either. The danger of a renewed recession in the euro zone is increasing.

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