Eurozone: Rising Covid cases may slow the recovery

With Covid infections rising rapidly again across Europe, the health situation is back under the spotlight. Governments across the region are becoming very vocal again on containment measures, while relatively hard restrictions are being reimposed in some countries. Austria even announced a 10-day hard lockdown on Monday in an attempt to curb infections. While the vaccination campaigns mean the medical situation is less threatening for the economy than a year ago, we see the current trend as worrying and expect further restrictive measures to be announced across the bloc.

What you will learn:

• Despite surveys showing sentiment remains elevated, we think the deterioration of the health situation will put a dent on the recovery.
• On the political front, the SPD, FDP and Greens struck a deal to form the next German government, which should be in power by early-December.
• Germany’s positioning will be key to finding a consensus to eventually change the fiscal rules as France and Italy, which signed a “Franco-Italian friendship agreement” this week, are already positioning themselves as allies seeking a relaxation of rules.