LONDON — What faint hopes remained that Europe was recovering from the economic catastrophe delivered by the pandemic have disappeared as the lethal virus has resumed spreading rapidly across much of the continent. After sharply expanding in the early part of the summer, Britain’s economy grew far less than anticipated in August — just 2.1 percent compared with July, the government reported on Friday, adding to worries that further weakness lies ahead. Earlier in the week, France, Europe’s second-largest economy, downgraded its forecast for the pace of expansion for the last three months of the year from an already minimal 1 percent to zero. Over all, the national statistics agency predicted the economy would contract by 9 percent this year. The diminished expectations are a direct outgrowth of alarm over the revival of the virus. France reported nearly 19,000 new cases on Wednesday — a one-day record, and almost double the number the day before. The surge prompted President Emmanuel Macron to announce new restrictions, including a two-month shutdown of cafes and bars in Paris and surrounding areas. In Spain, the central bank governor warned this week that the accelerating spread of the virus could force the government to impose restrictions that would produce an economic contraction of as much as 12.6 percent this year. The European Central Bank’s chief economist cautioned on Tuesday that the 19 countries that share the euro currency might not recover from the disaster until 2022, with those that are dependent on tourism especially vulnerable. Summer increasingly feels like a long time ago. ImageLondon’s financial district. The British economy grew far less than expected in August. Credit...Andrew Testa for The New York Times In July, with infection rates down, lockdowns lifted and many Europeans indulging in the sacred ritual of the summer holiday, signs of revival appeared abundant. Many European economies expanded strongly as people returned to shops, restaurants and vacation destinations. The most optimistic economists began celebrating a so-called V-shaped recovery, featuring a bounce-back just as steep as the plunge that had preceded it. Hopes had also been buoyed by a landmark agreement forged by the European Union to raise a 750 billion euro ($883 billion) relief fund through the sale of bonds backed collectively by all members. That move transcended years of resistance from debt-averse northern European countries, while signaling that the European bloc — not generally known for cooperation in the face of crisis — had achieved a new state of solidarity. But most economists assumed that better days would last only so long as the virus could be contained. Restrictions imposed by governments appeared less important than the willingness of consumers to interact with other people, returning to workplaces and shopping areas. In a report this week, Oxford Economics, a research institution in London, analyzed data across the eurozone, noting that much of the improvement in the late summer was the result of factories springing back to life after shutdowns. For expansion to continue, people have to buy the products the factories are making. The willingness to spend is influenced by confidence — whether people feel safe enough to move about; whether they fear they could lose their jobs. By September, as coronavirus cases climbed anew, consumption was falling off. “With the health situation unlikely to improve in the near term, we expect the recovery to slow again over the next few weeks,” concluded the report, which was written by Moritz Degler, an Oxford Economics senior economist. The economic slowdown is unfolding just as some European economies begin to taper off the extraordinary sums they have expended to protect workers from joblessness, prompting worries about a seemingly inevitable increase in unemployment. In Britain, the government, led by Prime Minister Boris Johnson, has been aggressively subsidizing wages at businesses hurt by the pandemic so long as employers do not fire their workers. The public covered 80 percent of wages when the program began in the spring. Even after a gradual easing, the government is picking up 60 percent of the cost this month. But the furlough program, which has cost the Treasury 39 billion pounds (about $50 billion), is set to expire at the end of the month. The overseer of the public finances, Rishi Sunak, has been expressing worries about the size of Britain’s debts, while pledging to square the books. Under a slimmed-down replacement program he announced last month, the government would cover only 22 percent of wages going forward. Employees at a pasta factory in Gragnano, a hilltop town near the Amalfi Coast. Italy is counting on receiving over 200 billion euros from the European relief fund.Credit...Gianni Cipriano for The New York Times But the rapidly deteriorating economic outlook has forced Mr. Sunak to go back to the well. On Friday, in anticipation of tighter limits on businesses, he announced a new furlough program that would cover two-thirds of wages at businesses that are required to shut down as virus cases increase rapidly, and that would also increase grants. The measures could be particularly significant in industrial areas in the north of England, where a surge of electoral support for the Conservative Party in last year’s elections helped keep Mr. Johnson in office. Fears of diminishing fortunes in Britain have been amplified by the possibility that the nation could crash out of the European Union at the end of the year — completing the tortuous process of Brexit — absent a deal governing future trade. That would risk job-killing chaos, especially at ports. On the other side of the English Channel, the fall has brought a realization that complex hurdles remain before the European Union’s relief fund can be administered, limiting prospects in the worst-hit countries like Spain and Italy. The Spanish prime minister, Pedro Sánchez, on Wednesday announced a stimulus spending plan worth €72 billion ($85 billion), with four-fifths of the money planned to come from the European fund. Spain may have to wait for that money. The fund is supposed to be operational by January, yet almost certainly will confront delays as European Union members debate conditions on its distribution — especially rules aimed at forcing Hungary and Poland to abide by the democratic norms of the bloc. A line outside the Louvre museum in Paris. France reported a one-day record for new coronavirus cases this week, and its economy is now projected to contract by 9 percent this year.Credit...Dmitry Kostyukov for The New York Times The continent’s prospects for recovery are further restrained by rules that limit debts by members of the European Union and curb spending. Those strictures have been suspended, but they will return eventually, limiting growth prospects. Italy is counting on receiving €209 billion ($246 billion) from the European relief fund, but the government is also pledging to bring down its public debt, which exceeded 134 percent of annual economic output at the end of last year. Such austerity, just as the pandemic increases costs for medical care, will almost certainly plunge Italy into a longer and deeper recession.
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