Just when the governments of Europe and other parts of the world were opening up after months of Covid restrictions, Delta – a deadly Covid variant – is raging across the bloc and the world, putting many reopening plans into limbo.
Germany, France, Italy, Spain and the Netherlands are some of Europe’s major economies that are having to reassess their grand reopening plans as the Delta variant drives infections higher.
So what measures are these countries taking and what may it mean for investors?
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Europe’s hotspots
Germany and France warned their citizens against all travel to Spain last week. The warning came as Spain surpassed Portugal to become the worst hit country in mainland Europe in terms of the number of infections.
France this week moved to restrict restaurants and shopping centres to only those who have been vaccinated and those who can present a negative Covid test.
And European countries are getting nervous about travellers coming from the UK even as the UK is set to lift almost all Covid restrictions on 19 July. Portugal, Italy and Germany announced tougher restrictions on UK travellers.
In Germany politicians are bickering over whether to ease restrictions fully or not amid 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 that Delta accounted for 59% of the country’s case at the end of June.
The Netherlands has enacted tougher measures after cases began creeping higher after 26 June, the day most restrictions were eased. As of 10 July, the government has introduced new measures including closing restaurants and bars between midnight and 6AM and shutting down nightclubs and discos.
Why should any of this matter?
The spectre of European countries imposing higher restrictions could potentially derail European economic growth and the recovery investors have been waiting for.
The European Commission increased its forecasts for the EU’s economic growth last week. The Commission is now bracing for a rise of 4.8% this year, following the 6.2% drop last year.
But Paolo Gentiloni, the EU economics commissioner, has stressed that the robust predictions do not factor in the chances of a new Covid outbreak, such as one caused by a variant as deadly as Delta, although he made it clear that he doesn’t expect the ongoing Delta variant to trigger more widespread lockdowns.
Erik Nielsen, chief economist at UniCredit, says he is getting nervous that Europe’s growth could be “derailed by Delta”,” reports the Financial Times.
What this means for investors
So that brings us to the question: will Delta really dampen Europe’s recovery hopes and what should investors do about it?
It is worth noting that while many of these countries have been forced to reimpose some Covid restrictions, hospitalisations have still remained strikingly low.
As the Wall Street Journal points out: “The spike in Spanish cases is leading to an increase in hospitalisations, but much more slowly than in previous waves, with only 2.4% of the hospital beds and 6.6% of intensive-care-unit beds occupied by 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, the lowest daily figure since mid March when a deadly second wave raged across the country.
So there’s a higher chance that many of the fears related to the variant have been overdone.
And as Kallum Pickering, economist at Berenberg, puts it: “thanks to rapid vaccination progress, we still consider it unlikely that countries will again have to impose serious restrictions to economic activity to contain the medical risks.”
The Stoxx Europe 600, Europe’s flagship stockmarket index, hit a record high of 461.38 in early trading on Tuesday ahead of key US inflation data and is up 11% since the start of the year, slightly lower than US exchanges.
So while Delta undoubtedly may threaten some of the summer party in Europe, it’s likely that cyclical stocks and reflation trade are still the dominant themes for investors.
-
Are you one of 15 million people at risk of retirement poverty?Two-fifths of people in the UK aren’t on track for a minimum lifestyle in retirement, new data shows. Are there steps you can take to boost your pension?
-
150 banking hubs now open across UK – is there one near you?As the 150th banking hub opens its doors, a Post Office deal that offers basic banking services has also been extended until 2030. We explain what this means for you
-
Trapped in a time of zombie governmentIt’s not just companies that are eking out an existence, says Max King. The state is in the twilight zone too.
-
America is in deep denial over debtThe downgrade in America’s credit rating was much criticised by the US government, says Alex Rankine. But was it a long time coming?
-
Bank of England raises interest rates to 5.25%The Bank has hiked rates from 5% to 5.25%, marking the 14th increase in a row. We explain what it means for savers and homeowners - and whether more rate rises are on the horizon
-
UK inflation remains at 8.7% ‒ what it means for your moneyInflation was unmoved at 8.7% in the 12 months to May. What does this ‘sticky’ rate of inflation mean for your money?
-
VICE bankruptcy: how did it happen?Was the VICE bankruptcy inevitable? We look into how the once multibillion-dollar came crashing down.
-
Would a food price cap actually work?Analysis The government is discussing plans to cap the prices of essentials. But could this intervention do more harm than good?
-
UK inflation slides to 8.7% - what does it mean for your money?News Inflation has dropped below 10% for the first time in months, but with food prices at a 45-year high, is this good news and what does it mean for your money?
-
Why the UK equity market is shrinkingAnalysis The crisis has been building for 25 years, says Max King, and it will take decades to reverse the trend.
