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Tighter coronavirus restrictions, not US elections, are "biggest short-term danger": UBS

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

Matthew Horwood | Getty Images News | Getty Images

SINGAPORE – Economies around the world are raising restrictions on movement as they continue to battle the coronavirus pandemic. According to the Swiss bank UBS, this is a “major downside risk” for the fourth quarter.

"Forget about US elections or fiscal incentives – higher restrictions are the biggest short-term risk to prospects," wrote economist Arend Kapteyn in an October 19 note.

"If countries start to impose circuit breaker bans that only last a few weeks, it could be enough to turn a positive growth rate (fourth quarter) negative," he said.

The term "circuit breaker" has become popular in the UK and refers to a brief but strict lockdown designed to break the chain of infection.

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

Increasing restrictions

Various economies, including France and the Netherlands, have tightened the measures in recent weeks, wrote Kapteyn. Since March, UBS has been tracking restrictions on the mobility of coronaviruses in 42 regions on a scale from 1 to 10 on a weekly basis.

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

Last month, the UK and the Netherlands rose from a "moderate" rating of 2.5 to a "medium" rating 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 4.3 4.5.

The median of the restriction is 3.5, a slight increase compared to August but a decrease from 8 in April.

"However, the number of countries taking action has increased," said Kapteyn. Last week, 13 economies raised the restrictions, three lowered them, the highest "net" figure since April.

"We need to monitor how long the restrictions persist and how mobility is responding, but this is now a major downside risk to our guidance for (fourth quarter)," he said.

– CNBC's Holly Ellyatt contributed to this report.

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