At the start of June 2020, as Europe’s improving Covid-19 statistics encouraged governments to start easing lockdown restrictions, flow considered the prospects for a return to normality in Exiting the Covid-19 ravine. A prescient Matthew Luzetti, Deutsche Bank’s Chief US economist cautioned “The return of economic activity is likely to be gradual.”

China has been among the few economies to achieve the much discussed V-shape recovery while India is swiftly bouncing back from a sharp recession, but for North America, Latin America and Europe, H2 2020 was less a case of exiting the ravine than falling back as a second wave of the pandemic and worrying new strains of the virus saw restrictions and full lockdowns reimposed. It was only at the end of the year that more positive news emerged, with evidence that developed economies have become more resilient to the impact of the pandemic and the roll-out of mass vaccination programmes underway led by Israel, the UK and the US.

The latter event renews hopes that the months ahead will be marked by a gradual return to normality as the major economies start to exit from renewed lockdowns. In Deutsche Bank Research’s white paper of February 9, dbDIG Global Macro Survey: Not as bad as 2020, but Italy and Spain lagging. US sees post-election relief, strategist Simon Carter examined in-depth macro consumer survey results from the bank’s Data Innovation Group. The survey took the pulse of eight major economies and assessed their consumer sentiment, employment and wage trends, consumer confidence, spending patterns and saving/spending intentions together with other indicators of recovery prospects.

The steady lifting of restrictions and gradual return to normal economic activity may not assuage people’s uncertainty about their cashflows. The survey results confirm that people in Europe, the UK and the US have spent less during lockdown and have a benign view on the likelihood of running out of money over the next month. Heading out a further six months, that picture changes with people growing increasingly worried about their savings, reflecting uncertainty over just how quickly things will open up to allow a return to normal. Italy and particularly Spain remain standouts in terms of consumer concerns over cashflows (see Figure 1). Savings in these countries have risen as a result, most sharply in Spain, since September 2020.

While Italy and Spain lag materially in household financial confidence, it has risen modestly elsewhere in Europe and more sharply in the US (see Figure 2). Carter notes that the sharp rise in the US (and improved household income expectations) is perhaps buoyed by a change in the guard at the White House. In terms of restrictions, New York continues to ease curbs on businesses as theatres will be allowed to reopen in mid-March with reduced capacity. Meanwhile, the US government gave Moderna positive feedback to extract more doses of its Covid-19 vaccine from each individual vial it produces. This could expand supplies, which continue to trail demand dramatically.

The growing ability of businesses and consumers to adapt to the restrictions of a pandemic was explored by Deutsche Bank Research analysts in the 4 February publication COVID-19 dbDIG survey: Adapting to life in lockdown. Based on the results of its household survey, several of the findings were relatively positive. While mobility remains limited, since spring 2020 and the first lockdown the link between mobility and economic activity appears to have weakened as the economy and individuals adapt to operating under lockdown restrictions and working from home (WFH) becomes the norm.

The euro area economy has proven to be surprisingly resilient to the most recent lockdowns
Deutsche Bank Research ‘Covid-19 dbDIG survey: Adapting to life in lockdown’

Second and even third lockdowns have not significantly affected productivity and hours worked, with both above the levels of the first phase of the pandemic. Apart from a post-Christmas lull in January 2021, consumer spending has also improved from the levels of the first lockdown. In addition, despite media reports of contraventions the survey across Europe found around 80% of respondents readily complying with measures to control the virus. “’Lockdown fatigue’ also does not appear to be an issue,” the report’s authors note.

Offsetting these findings survey responses (Figures 3 and 4 below) evidence that workers now feel more at risk from being made unemployed, while those who have already lost their jobs are pessimistic on their chances of finding new employment. As the pandemic has persisted, households generally feel that conditions have not improved since the first lockdown and continue to be downbeat about the outlook for the wider economy and their own incomes.

Shuttered high street stores might indicate a sharp fall on European consumers’ spending, but the survey of the four main Eurozone economies and the UK shows an improvement since the peak of the first lockdown when spending was down 5% to 9% year on year. However, since then the gradual reopening of stores, coupled with the introduction of furlough and other support schemes has seen spending recover to be 2% to 4% below 2019 levels as per Figure 5. According to the report “overall spending across the major European economies seems to have been robust to the introduction of the restrictions that were part of the recent lockdowns. The pickup in spending between the first and recent lockdowns has been broad based.”

Given the concerns over “vaccine refuseniks” reported by flow last month in “Will vaccines deliver normality?”, the report offers a further item of positive news. The results of the survey, conducted between mid-December 2020 and mid-January 2021 show a “significant rise” in the share of respondents willing to be vaccinated.

“Even in France, which by European standards is sceptical of vaccines and has had significant issues rolling out the vaccine, the share willing to get vaccinated rose up to the levels seen in other countries back in August and September [2020],” the report notes. With the exception of German respondents, there was also an increase in the number agreeing that anti- Covid-19 vaccines should be made mandatory.

“The improving attitudes towards the vaccine are a positive sign for the economic recovery,” the analysts note. “The faster governments are able to deploy the vaccine to achieve herd immunity, the quicker normality can be restored. When that normalisation does come, it might come quickly.”

A quick return to normality would be particularly welcome in the UK, whose GDP for 2020 was reported on 12 February¹ to have declined by -9.9%; the steepest drop since the ‘Great Frost’ of 1709. The country also one of the world’s worst rates of Covid-19 related deaths per million of population².

At the same time, the UK government met a pledge to offer vaccines to 15m of its citizens deemed to be most vulnerable to the virus, raising hopes that the country’s emergence from lockdown might be accelerated. On 11 February the Bank of England’s Chief Economist, Andrew Haldane³ was emboldened to liken the British economy to a “coiled spring” poised to release “pent-up financial energy” and to be “firing on all cylinders” by the spring.

In his UK Blog of 16 February, How much could the government’s vaccine programme add to Q1 GDP?, Deutsche Bank Research economist Sanjay Raja reported that its vaccines procurement and distribution programme could add between 0.6-1 percentage points (pp) to the UK’s GDP for Q1 2021.

• Early Morning Reid - Macro Strategy, 23 February, by Jim Reid
• Focus Europe: Covid-19 dbDIG survey: Adapting to life in lockdown, 4 February, by Michael Kirker, Mark Wall and Simon Carter
• dbDIG Global Macro Survey: Not as bad as 2020, but Italy and Spain lagging. US sees post-election relief, 9 February, by Simon Carter
• UK Blog: How much could the government’s vaccine programme add to Q1 GDP?, 16 February, by Sanjay Raja
• Data Flash Germany: Feb ifo index - Strong upside surprise provided by expectations, 22 February, by Stefan Schneider and Marc Schattenberg

Sources

¹ See https://bit.ly/3bFz8A3 at markets.businessinsider.com
² See https://bit.ly/3srRY4I at statista.com
³ See https://bbc.in/3bynTcO at bbc.co.uk