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â The new lockdown could shave 3-4% off French GDP in Q4 2020

â Tighter restrictions could lower German Q4 GDP by roughly 1%

â Negative confidence effects could exacerbate the impact

â A rebound in confidence if restrictions are eased again in time for the Christmas shopping season could limit the damage

â The outlook for 2021 remains positive. Q3 has shown that economies can snap back fast. Ongoing medical progress and record support from monetary and fiscal policy should help over time

The second wave of COVID-19 is taking a heavy toll on Europe. Following a major surge in infections and rising hospitalisation and death rates (see charts 1-4 on page 3), France announced a new one-month lockdown last night. Germany, which is less affected than most other European countries by the second wave of the pandemic, also tightened its rules, but much less harshly. In the case of France, the lockdown goes well beyond the assumptions on which we had based our below-consensus forecast of a 0.5% contraction in French GDP in Q4 2020. French GDP now looks set to decline significantly in Q4, possibly by 3-4%. In the case of Germany, where the important retail sector is barely affected, the impact should be much more limited. Table 1 gives the size of the sectors that are directly hit by the new measures.

Holger Schmieding

Chief Economist

+44 7771 920377

holger.schmieding@berenberg.com

Florian Hense

European Economist

+44 797 385 2381

florian.hense@berenberg.com

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