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Pedestrians walk past closed shops in Brussels. Photo: Reuters

Coronavirus: as Europe gradually reopens, businesses remain pessimistic about recovery

  • Rather than auguring the snapback in growth once touted by officials, the easing of lockdowns across Europe looks likely to herald a tough slog
  • The wreckage to economies around Europe is already obvious, most emphatically in southern countries particularly hit from the outbreak
For Javier Vazquez, business as usual will be a faint prospect even when he does get to reopen his two Madrid restaurants closed by the coronavirus.
“When are we going to get back to 100 per cent?” asks Vazquez, wondering about the revenue he can bring in once Spain allows him and his staff to get back to work serving tapas and Galician-style octopus. “I think about it. And I think, probably never.”
Vazquez’s plight is one shared by businesses across Europe as governments this week from Spain to Switzerland allow further easing of lockdowns that they had imposed to keep the outbreak at bay.

Rather than auguring the snapback in growth once touted by officials, those tentative steps look likely to herald a tough slog – particularly as long as the pandemic remains a threat to public health.

That bleak outlook was underscored by the European Commission’s May 6 forecast for an unprecedented 7.4 per cent economic contraction in the European Union this year, the worst slump in its history. Even that dire prediction assumes lockdowns across the continent will gradually ease with the virus under control.

“There’s a widely accepted view that this is the bottom and we’re going to fly back in terms of growth,” said HSBC economist James Pomeroy. “The growth rate will probably bottom out in the second quarter, but don’t expect things to get back to normal any time soon.”

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The wreckage to economies around Europe is already obvious, most emphatically in southern countries particularly hit from the outbreak and whose ability to respond is limited by wide budget deficits and large piles of debt.

The Commission forecasts slumps exceeding 9 per cent this year in Italy, Spain and Greece, compared to a 6.5 per cent drop in Germany.

That gloomy outlook still factors in an impending pickup in activity that will begin this month as lockdowns start to thaw.

Spain will allow social gatherings of as many as 10 people in some regions this week and limited seating at restaurants’ outdoor terraces and patios, while France and Switzerland also experiment with easing restrictions. Italy and Germany have taken cautious steps toward resuming economic life.

“It would be naive to assume that once we stop the lockdown, everything will be just back to normal,” said Guntram Wolff, the director of the Bruegel think tank in Brussels.

“We are looking here at the resumption of some economic activity,” he said. “But a lot of businesses, a lot of sectors will remain heavily affected, including tourism, restaurants, everything in the service sector where you have personal interactions.”

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An overarching problem facing officials is that until a vaccine is found and administered, people are likely to keep avoiding each other and will consume less.

In Europe’s five largest economies, 40 per cent or more of respondents in a YouGov survey said they are fearful of catching the virus. Many businesses also cannot enforce social-distancing measures without forsaking a significant portion of revenue.

“For many shops and restaurants, it’s a big problem,” said Rainer Neusius, who runs Zaemae, a sustainable fashion boutique in Zurich. “The rules mean fewer customers, and that’s not lucrative.”

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Neusius is still “mega happy” about being able to reopen on Monday, when Switzerland will allow all clothing stores and restaurants to resume business, but is unsure whether to expect many customers at first.

That has been the struggle in Denmark and Sweden, where demand has stayed sluggish even as governments there lift restrictions that were already much looser than elsewhere. HSBC’s Pomeroy notes that Swedish restaurants are seeing a 70 per cent drop in sales.

“If that’s the dream, essentially, that other countries are aiming to get back to in June, it’s still an economy that’s having a massive recession,” he said.

In Britain, Prime Minister Boris Johnson is poised to keep businesses shut until June after infections increased. Such a move will deepen the economy’s contraction this year, which is now predicted by the Bank of England to turn out as the worst in three centuries.
The prospect of a second wave of infections remains a risk to businesses everywhere wondering whether to reopen doors and re-employ staff. Some provinces in China have had to reintroduce lockdowns, while Singapore, which was considered the global standard-bearer for taming the virus, recently had to tighten restrictions after cases spiked.

More damage may follow in the wake of businesses that choose not to bother reopening even if they are allowed to. That is the situation facing Sergio Coppola and his wife Franca, who own and let out a restaurant in Monterotondo, north of Rome, which will stay shut for the foreseeable future because of social-distancing restrictions.

People at a street in Bolzano, northern Italy. Photo: EPA-EFE

“We’d have to cut the number of tables in half, and don’t even know how many people would actually come,” he said. “For some, the best option is to close everything to cut costs, and hope you’ll be able to reopen someday.”

Back in Spain, where the hostelry business had been riding high before the pandemic amid robust growth and record tourism numbers, entrepreneurs face similar tough choices on whether to resume operations. Fernando Lasala reckons social distancing will keep his small restaurant in Madrid shut for months to come.

“For me to turn a profit, I have to have the bar full at lunch and dinner,” he said. “In such a small place, it’s impossible to open.”

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