LONDON (Reuters) - Goldman Sachs (NYSE:GS) sharply cut Europe's fourth quarter economic forecasts on Monday as a surge in COVID-19 cases prompted the introduction of partial nationwide lockdowns in some countries in November, halting a nascent recovery seen during the summer.
UK Prime Minister Boris Johnson ordered England back into a national lockdown from Thursday as a second wave of infections threatened to overwhelm the health service. The move brought England into alignment with France and Germany which imposed nationwide restrictions early last week.
The U.S. investment bank said it expects the euro area's real gross domestic product (GDP) to shrink 2.3% in the fourth quarter, a sharp reversal from its earlier projection of 2.2% growth.
Similarly, it cut UK GDP growth forecasts to minus 2.4% from a 3.6% expansion it had earlier expected.
"Looking ahead, we assume that the new restrictions will last for three months before they are gradually rolled back starting in February," Goldman Sachs economists wrote in a note to clients.
Citi economists, meanwhile, said they expected UK GDP to shrink by over 4% between October and December. "More protracted national lockdowns cannot be ruled out," Citi said in a note.
"With virus risks still likely to persist until Q2-2021, we expect output to remain more than 11-13% below Q4-2019 levels until then, with local restrictions and an acute behavioural response weighing sharply (alongside Brexit). The risk of more permanent effects is also growing."