Second wave delays the recovery

The extension of lockdowns has dashed hopes of an early rebound in economic activity. Instead, the economy is likely to contract in the first quarter of this year. After falling quite steeply at the end of last year, the number of new virus cases in the euro-zone has begun to rise again, and the number of daily deaths remains close to its peak during the first wave. The trajectory is particularly worrying in Germany. Meanwhile, the explosive increase in virus cases in the UK suggests that the epidemic could become much more virulent in Europe in the coming weeks. Still, we remain cautiously optimistic that the vaccine rollout will allow governments to lift restrictions gradually during the second quarter of this year, paving the way for a more sustainable recovery in the second half.