Just when governments in Europe and the rest of the world were opening up after months of Covid-19 restrictions, Delta, a deadly variant of Covid-19, is spreading across the bloc and around the world, leaving many plans to reopen unclear.
Germany, France, Italy, Spain and the Netherlands are some of the major European economies that need to re-evaluate their major reopening plans as the Delta variant again leads to a high number of infections.
What measures are these countries taking and what does this mean for investors?
Germany and France warned their citizens not to travel to Spain last week. The warning came as Spain overtook Portugal to become the most hit country in continental Europe in terms of the number of infections.
France made the next move this week by restricting restaurants and malls to only those who have been vaccinated and those who can submit a negative Covid test.
And European countries are getting nervous about travelers coming from the UK even when the UK is set to lift almost all of Covid restrictions on July 19th. Portugal, Italy and Germany announced tougher restrictions on travelers to the UK.
In Germany politicians are arguing over whether to fully ease restrictions between a higher incidence rate. The incidence rate, which shows the number of new cases per 100,000 people, has risen in Germany for several consecutive sessions, according to the Robert Koch Institute, Germany’s public health body, which said Delta accounted for 59% of the country’s infected cases. at the end of June.
The Netherlands has adopted tougher measures as cases began to drag on after June 26, the day many restrictions were eased. Since July 10, the government has introduced new measures including closing restaurants and bars between midnight and 6am and closing nightclubs and discos.
The spectrum of European countries imposing higher restrictions could potentially disrupt the expected economic growth and recovery investors.
The European Commission raised its forecast for EU economic growth last week. The commission is now preparing for a 4.8% increase this year, after falling 6.2% last year.
But Paolo Gentiloni, the EU’s economic commissioner, has stressed that strong forecasts do not affect the chances of a new Covid eruption, such as the one caused by a variant as deadly as Delta.
Erik Nielsen, chief economist at UniCredit, says he is nervous that Europe’s growth could be “disrupted by Delta”, reports the Financial Times.
So this brings us to the question: will Delta really extinguish the hopes of Europe’s recovery and what should investors do about it?
It is worth noting that while many of these countries have been forced to reinstate some of Covid’s restrictions, hospital admissions have still remained very low.
As the Wall Street Journal points out: “Spike in Spanish cases is leading to an increase in hospitalizations, but much more slowly than in previous waves, with only 2.4% of hospital beds and 6.6% of intensive care unit beds occupied from Covid-19 patients. ”
India, where the Delta variant originates, is also reporting much lower cases. The world’s second most affected country reported just under 33,000 cases on Tuesday, July 13, the lowest daily figure since mid-March when a second deadly wave spread across the country.
So there is a higher chance that many fears about the variant have been overcome.
And as Kallum Pickering, an economist in Berenberg, puts it: “Thanks to the rapid advancement of vaccination, we still consider it unlikely that countries will again have to impose serious restrictions on economic activity to contain medical risks.”
The Stoxx Europe 600, Europe’s leading stock market index, hit a record high of 461.38 in early trading on Tuesday ahead of key US inflation data and has risen 11% since the beginning of the year, slightly lower than American exchanges.
So while Delta could undoubtedly threaten some of the summer holidays in Europe, it is likely that cyclical stocks and the reflection trade are still predominant topics for investors.