Spain and Italy are likely to bounce back less quickly than Germany due to the stringency of their shutdowns and the outsize role the service sector plays in their economies, according to Goldman Sachs.
Economists Soeren Radde, Nikola Dacic and colleagues looked at Google data measuring people’s movements and that strongly correlates with measures of factory and service-sector activity. They found that in Spain and Italy, where people were required to stay home, mobility dropped more below its usual level than in Germany or Sweden, where governments imposed less stringent rules to control the spread of the virus.
“Spain and Italy look less well placed for exit from containment measures than Germany on account of demographic factors, limited health care capacity and their reliance on services with a high-degree of face-to-face interactions,” the report found.
With economic activity hampered more severely in southern Europe, Goldman Sachs now expects an 11% drop in euro-area gross domestic product this year. In Germany the contraction is likely to be 9%, less than the 13% to 14% slumps forecast for France, Spain and Italy.
“Reopening businesses is likely going to be easier in more industrial and less service-oriented economies as the latter tend to involve more face-to-face interactions,” the authors said. “Germany should therefore be able to proceed somewhat faster than its peers and has, indeed, started easing containment measures at an earlier stage in the virus cycle.”
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