Dark déjà vu for European economy as virus cases spike

New restrictions in Europe are not as drastic as the near-total lockdown imposed in the spring. (AFP)
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Updated 18 October 2020

Dark déjà vu for European economy as virus cases spike

  • The early-year norm of closed hospitality venues and struggling airlines is beginning to return amid new infections

LONDON: Europe’s economy was just catching its breath from what had been the sharpest recession in modern history. A resurgence in coronavirus cases this month is a bitter blow that will likely turn what was meant to be a period of healing for the economy into a lean winter of job losses and bankruptcies.

Bars, restaurants, airlines and myriad other businesses are getting hit with new restrictions as politicians desperately try to contain an increase in infection cases that is rapidly filling up hospitals.

The height of the pandemic last spring had caused the economy of the 19 countries that use the euro to plunge by a massive 11.8 percent in the April-June quarter from the previous three-month period. About 1.5 million more people registered as unemployed during the pandemic. The damage was contained only by governments’ quick decision to spend hundreds of billions of euros to keep another 45 million on payrolls and companies running.

While the new restrictions are so far not as drastic as the near-total shutdown of public life imposed in the spring, they are kicking an economy that’s down. For many Europeans, there is a foreboding sense of déjà vu.

“It is a disaster,” says Thomas Metzmacher, who owns a restaurant in Germany’s financial hub, Frankfurt, of the government’s decision to impose an 11 p.m. curfew.

He noted that even before the new restrictions many people in his industry could only just about survive. The curfew means people who come in for a meal don’t linger for a few extra beers or schnapps, which is where restaurants make most of their profits. “Now it is: Go for a meal, finish your drink, pay, go home,” he said.

Experts say that the global economy’s course depends on the health crisis: Only when the pandemic is brought under control will it recover.

Countries like China, which have so far avoided a big resurgence like Europe, are faring better economically. The US never quite got its first wave under control and its economy remains hobbled by it.

Europe had reduced the number of infections much faster than the US and managed to keep a lid on unemployment. But the narrative that contrasted Europe’s successes against the Trump administration’s failure to subdue the pandemic is being quickly revised.

As coronavirus cases rise anew in Europe, economists are slashing their forecasts.




German Chancellor Angela Merkel has extended the wage support plan as tighter business restrictions return. (Reuters)

Ludovic Subran, the chief economist at financial services firm Allianz, says there is a high risk that the economies of France, Spain, and the Netherlands will contract again in the last three months of the year. Italy and Portugal are also at risk. While Germany is seeing an increase in infections, too, it is not as bad and the economy appears more resilient.

“We see an elevated risk of a double dip recession in countries that are once again resorting to targeted and regional lockdowns,” he said.

The pandemic is worsening just as governments were trying to ease off the massive amounts of financial support they have been giving households and business owners.

Many governments have programs where they pay the majority of salaries of workers who are redundant in the hope that they will be able to quickly get back to work after the pandemic. In France and Britain that covered a third of the labor force at one point, and 20 percent in Germany. They also gave cash handouts to households and grants to business owners.

Now governments are phasing out some of that support and aiming to provide more targeted aid to people directly affected by new restrictions. That will not help people whose jobs are affected indirectly. A pub facing a curfew, say, would be eligible to get wage support for its staff but the brewery supplying it might not.

The impact will vary between countries — while Britain is shifting to a less-comprehensive wage support plan, Germany has extended its program.

As with the pandemic’s initial surge in the spring, the sectors in Europe most affected by limits on public life are services including travel and hospitality — those that depend most on face-to-face contact between people.

Countries like Spain, Portugal and Greece rely heavily on tourism. It accounts for almost 12 percent of Spain’s economy, compared with less than 3 percent for the US and about 7 percent for France.

Major airlines in Europe expect to operate at about 40 percent of normal levels this winter and are again cutting the number of flights. Lufthansa, British Airways and others are cutting tens of thousands of jobs as they expect no quick return to how things were before the pandemic — even with government aid.

Even where there are no hard restrictions, the health hazard scares customers away, so shops are likely to see less business.

The EU is giving €750 billion ($880 billion) in financial support to member countries to cope with the fallout. Governments like Spain’s were planning to invest in long-term projects such as renewable energy and technology. It now appears they will have to spend more on just keeping the economy afloat. The European Central Bank is injecting €1.35 trillion ($1.6 trillion) into the economy, which keeps borrowing cheap even for countries with weak finances like Spain and Italy.

But the longer the pandemic drags on, the more the decisions on how to spend financial aid will become political, says Subran, the economist. Political parties are fighting over how to deploy the resources, and unions are going on strike to influence the debate. It mirrors the turmoil in the US, where a badly needed stimulus package has been delayed.

For Ludovic Nicolas-Etienne, a Parisian shopping for food among the stalls of the central Bastille square, it is a tragedy foretold. He blames the people who during the summer disregarded safety recommendations to party and socialize after months of lockdown.

“I was expecting this,” he said, wearing a mask outdoors the day after France announced a state of emergency. “Some people are not responsible enough, so the good people are paying for the bad ones.”


Economic boost tipped after UAE company ‘game-changer’

Updated 25 November 2020

Economic boost tipped after UAE company ‘game-changer’

  • Dramatic overhaul of corporate ownership laws follows accelerated reforms to shrug off pandemic slowdown

DUBAI: Radical changes to corporate ownership and investment laws could provide a significant boost to the UAE as it seeks to emerge from the ravages of the coronavirus pandemic lockdowns, business experts told Arab News.

The Emirati authorities have announced a raft of changes that relax restrictions on foreign ownership and make it easier for international businesses to set up and operate in the UAE, as well as new rules that will allow more shares to be listed on the country’s stock exchanges.

Economics expert Nasser Saidi said: “The liberalization of foreign ownership laws breaks down major barriers to the right of establishment. The reform is a game-changer.”

Tarek Fadlallah, CEO of Nomura Asset Management in the Middle East, said: “I would like to see some more detail, but if the deal is that you can leave London or New York and set up easily in the UAE, it’s revolutionary in regional terms.”

The changes were announced in the form of a presidential decree. “Maybe it’s pandemic related, but everything the UAE authorities have done this year has been extremely positive for the business and financial environment,” Fadlallah added.

Under the changes, companies seeking to quote shares on UAE markets will be able to list up to 70 percent of their shares, a big jump from the previous 30 percent limit, in a move that could reinvigorate local stock markets.

“It will encourage foreign direct investment, but also lead to a recapitalization of jointly owned companies and encourage entrepreneurs to invest in businesses and new ventures. Importantly, it will encourage the retention of savings in the UAE,” Saidi added.

The most eye-catching of the planned changes is the move to allow foreign firms to set up outside free zones without the requirement for a majority Emirati shareholder or agent.

The new set-up will in theory open the way for full foreign ownership throughout the UAE, although the Emirati authorities have been pragmatic in the past in their efforts to attract big-name foreigners. Apple was allowed full foreign ownership when it set up its first store in the country five years ago. 

Pandemic restrictions have hit an already sluggish UAE economy. (AFP)

More foreign firms setting up onshore could be seen as a threat for the free-zone model that has been one of the driving forces behind the UAE’s rise to become the regional business hub.

Habib Al-Mulla, executive chairman of Baker & McKenzie Habib Al-Mulla law firm, said: “Free zones will now face a real challenge. They either come up with a new package of incentives or their role ends.”

Other proposed changes also represent a break from the traditional business culture in the region. Rules that required a company chairperson to be an Emirati national, and for company boards to have an Emirati majority, have also been removed.

In addition, the decree allows for the dismissal of a chairman or any other board member if a judicial judgment is issued against them for committing fraud or misuse of power, while enabling stakeholders to sue a company in civil court over any failure of duty that results in damages.

Electronic voting will also be allowed at shareholder meetings, in a departure from the requirement for a physical show of hands.

“The decree is reflective of the UAE’s forward-looking vision to open up its economy by creating a favorable legislative environment that will keep pace with the changes taking place across the global economy and supporting companies operating in the country,” the official UAE news agency, WAM, said.

Some sectors regarded as of strategic importance — such as energy, utilities, and government-owned businesses — will be exempt from the new rules, and there is a certain amount of discretion given to local authorities in setting rules regarding Emirati directors and determining fees and charges payable under the new regulations.

This week’s changes are the latest in a series of reforms that have been accelerated in the UAE since the COVID-19 pandemic recession struck an already sluggish business scene.

New rules on residency visas have been introduced to alleviate problems in the real estate market, especially in Dubai, as well as a range of changes to social and lifestyle reforms.

“Along with the change in visa regulations, the new reforms will boost the UAE’s growth prospects,” Saidi said.

Ziad Daoud, Dubai-based chief emerging markets economist at Bloomberg, said: “Diversifying stock markets away from oil requires attracting foreign investment as well as fixing the distorted labor market. Most other measures are cosmetic. We’ll see how they are implemented, but the initial assessment of the new regulations is positive.”