Europe Slowly Picks Up Pieces After Virus Shattered Economy

Economic confidence is slowly returning to the euro area where companies from manufacturers to retailers are picking up the pieces after devastating coronavirus lockdowns.

Sentiment in a European Commission survey rose in June, though less than economists had forecast, and it remains well below the levels seen at the start of the year. The report -- like similar ones published recently -- indicates that full recovery is still a long way off.

Separate figures showed inflation in Germany, the regions largest economy, accelerated sharply as services providers slapped with restrictions to prevent the spread of the coronavirus raised prices. Euro-area data are due on Tuesday.

The 19-nation euro region is set to shrink more than 8% this year, and European Central Bank President Christine Lagarde has warned that the pandemic will change parts of the economy permanently.

“We are slowly emerging from the depths of the economic impact, but Id hesitate to say that we can see the end of this crisis right now,” ECB Governing Council member Gabriel Makhlouf said on Monday.

So far, confidence has clawed back about 30% of the combined losses of March and April, when far-reaching restrictions brought public life to a near standstill. While those limitations are now gradually being lifted, the continued spread of the disease in parts of Europe, as well as in the Americas, serves as a cautious reminder how quickly the situation can deteriorate again.

Hundreds of thousands of workers are already facing unemployment, with companies from Deutsche Lufthansa AG -- Germanys severely battered airline that just secured a government bailout -- to plane maker Airbus SE preparing to cut jobs.

The commission report showed that employment expectations in the euro area have improved from their lows, but for some sectors they remain as much as 60% below pre-virus level.

Still, consumer confidence rose in June as households expect the general economic situation to get better. In fact, sentiment measures increased across all industries and major euro-area economies.

The improvements come on the back of massive stimulus campaigns. The ECB is buying 1.35 trillion euros ($1.5 trillion) worth of debt under its crisis program, and governments have pledged hundreds of billions of euros in support.

German Chancellor Angela Merkels coalition agreed this month on a sweeping 130 billion-euro plan, and Economy Minister Peter Altmaier has flagged a package of measures aimed at exporters for the coming week.

Germany‘s inflation rate rose to 0.8% in June, exceeding most economists’ estimates. State-level releases showed steep price increases for hair and cosmetic services, as well as at restaurants and cafes -- businesses required to meet stringent hygiene rules to receive customers.

What Bloombergs Economists Say...

“If any European country is likely to see a V-shaped recovery, its Germany. Getting the virus under control caused less disruption than elsewhere, fiscal support is substantial and activity is picking up again.”

-- Jamie Rush, chief European economist. Read the GERMANY INSIGHT

The European Unions leaders held their first debate on a proposed 750 billion-euro plan to help their economies heal from the pandemic, and agreed to meet in person next month with the aim of reaching an agreement.

— With assistance by Kristian Siedenburg, and Harumi Ichikura

(Updates with comment from ECBs Makhlouf in fifth paragraph.)