Tighter coronavirus restrictions, not U.S. elections, are the ‘biggest near term risk’: UBS

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A woman wears a face mask as she walks up St. Mary Street on October 19, 2020 in Cardiff, Wales. Wales will go into a national lockdown from Friday until November 9.

Matthew Horwood | Getty Images News | Getty Images

SINGAPORE — Economies around the world are increasing movement restrictions as they continue to fight the coronavirus pandemic, and that’s a “major downside risk” for the fourth quarter, according to Swiss bank UBS.

“Forget about the U.S. elections or fiscal stimulus — restrictions creeping higher is the single biggest near term risk to the outlook,” economist Arend Kapteyn wrote in a note dated Oct. 19.

“If countries start to impose ‘circuit breaker’ lockdowns that last just several weeks, that may already be enough to turn a positive (fourth quarter) growth rate negative,” he said.

The phrase “circuit breaker” has become popular in the U.K. and refers to a short but strict lockdown intended to break the chain of infection.

There have been more than 40.6 million cases of the coronavirus worldwide, and at least 1.12 million people have died, according to data compiled by the Johns Hopkins University.

Increasing restrictions

Various economies including France and the Netherlands have tightened measures in recent weeks, Kapteyn wrote. UBS has been tracking coronavirus mobility restrictions in 42 geographies weekly since March on a scale of one to 10.

According to the bank, if restrictiveness increases by one point for an entire quarter, gross domestic product will decline by 6 percentage points.

Over the last month, the U.K. and the Netherlands have increased from a “moderate” rating of 2.5 to an “intermediate” level of 5. UBS also increased the Czech Republic’s score by 2 points to 4.3, and Ireland and France by 1.5 points to 4.5.

The median level of restrictiveness is 3.5, up slightly from August, but down from 8 in April.

“However, the number of countries taking measures has been increasing,” Kapteyn said. Last week, 13 economies increased restrictions, while three lowered them, the highest “net” number of increases since April.

“We’ll need to monitor how long restrictions stay in place and how mobility responds, but this is now a major downside risk to our forecasts for (the fourth quarter),” he said.

— CNBC’s Holly Ellyatt contributed to this report.

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