Sharply rising Covid-19 cases are posing downside risks to European growth over the winter. Thankfully fatalities are so far much lower than in previous waves, but the rapid pace of case growth is forcing governments to introduce new restrictions. New measures to date are largely restricted to the worst hit regions, and often targeted in an effort to encourage vaccination uptake. Hospital admissions broadly remain below previous peaks, yet further restrictions to mobility cannot be ruled out as we move into the winter. Our base case expects the hit to activity to be more manageable than last winter, primarily thanks to higher levels of immunity, although clearly new variants remain a wildcard. The implications of rising infection rates for inflation are less clear. New restrictions would help to ease building price pressures in Covid-sensitive service sectors, but could exacerbate pressures in already elevated goods prices.

Europe is in the midst of a fourth Covid-19 wave

EU Covid-19 cases and deaths, seven-day moving average per million people