Volkswagen : Europeans Despondent as Lockdowns Spread

Europeans became much gloomier about their prospects in early March as governments across the continent announced a series of ever more stringent restrictions on movement and social interaction, suffering the largest loss of confidence in a single month on record.

The European Commission Monday said its measure of consumer sentiment in the 19-country eurozone slumped to minus 11.6 from minus 6.6 in February, the largest one-month fall since the series began in 1985.

Europeans were gloomier in the 12 months that followed the collapse of Lehman Brothers in September 2008, the event that signalled an intensification of a mounting financial crisis.

But at no point did they shift so sharply and abruptly from hopefulness to gloom in the course of a few weeks, as they did in early March. The drop in that month takes the measure below its long-term average of minus 11, signaling a swing to relative pessimism from optimism.

The Commission’s survey excluded the U.K., which left the European Union in January. However, a separate survey of households by Ipsos MORI for data firm IHS Markit found British households also grew more gloomy about their financial outlooks in early March.

The survey found that workers were less sure of keeping their jobs than at any time since early 2012, with those employed by manufacturers and in the entertainment industry most fearful of becoming unemployed.

That swing to despondency will make the task of keeping the economy afloat even more challenging for governments and central banks, since pessimistic consumers tend to cut back on spending. With consumers already restricted in their purchases thanks to the lockdowns, cutting back where they still have a choice would worsen the expected downturn.

Ben Sanders, a 32-year-old who works for a cybersecurity firm in London, bought three bottles of wine he found for 60% off at a pub in North London over the weekend. Mr. Sanders said he expects to buy beer from the pub going forward but doesn’t expect to drink as much at home as he ordinarily would when out with friends.

“I might have a few drinks on a Wednesday and a Saturday but possibly not quite as much as before,” he said.

European governments have steadily tightened restrictions on movement and gatherings of people over recent weeks, having initially decided against following the example set by China and some other Asian countries in later January and February.

Italy ratcheted up its nationwide quarantine Sunday, shutting down almost all industrial production and offices as it struggles to contain the world’s deadliest coronavirus outbreak.

The German government last week ordered all nonessential businesses to close to help limit contagion, while large industrial companies such as car makers Volkswagen AG and BMW AG shut their factories. On Sunday, it announced a tightening of these measures, including a ban of public gatherings of more than two people.

Those restrictions will likely push the eurozone economy into recession, and economists expect to see the largest drop in output coming in the three months through June.

“The lockdown of large parts of Europe over the past two weeks has sharply worsened the economic outlook and a recession now appears inevitable — the question is how deep and long it will be,” said Reinhard Cluse, an economist at UBS.

March is expected to mark the first month of sharp declines in activity, with some businesses already announcing layoffs and reduced hours for their workers. In a report released Monday, Germany’s Ifo think tank estimated that 1.8 million jobs could be lost over coming months, with a further six million seeing their hours of work shortened.

The Commission’s survey of consumer confidence was largely complete before the latest round of restrictions were announced last week, and they could deal a further blow to sentiment.

But the survey also missed the response to a series of measures designed to pay and persuade businesses to hold onto their workers over the coming months, even if they see revenues tumble. If those government initiatives seem likely to succeed, households may quickly recover their sense of hope.

Source: https://bit.ly/2wm8BHH