Parisians shop at an open market in Paris on the first day of a second national general lockdown aimed at curbing the spread of COVID-19 infections.
The European Central Bank’s governing council said on Thursday that it would “recalibrate” its monetary policy tools at its next meeting on Dec. 10. ECB President Christine Lagarde said the move was needed in light of the “clear deterioration” of economic prospects expected in the last months of the year.
- Lagarde strongly hinted that the strength of the second spike of coronavirus throughout the region and the new lockdown measures enforced in most eurozone member states would make it necessary for the central bank to act again, once it has a clearer picture of the extent of the upcoming shock.
- The eurozone economy grew strongly in the three months ended in September, with gross domestic product up 12.7% on a quarterly basis, the European Union statistics institute Eurostat said on Friday. That compares to a 11.8% slump in the second quarter.
- The rebound was stronger than expected in a few major economies such as France (+18.2%) and Italy (+16.1%). But the eurozone’s GDP remains 4.3% below the level reached in the same quarter of 2019.
- Inflation in the eurozone remained negative in October at an annual minus 0.3%, Eurostat said. Lagarde on Thursday dismissed fears of full-blown deflation, but said she expected inflation to remain negative until early 2021. The central bank’s official remit is to keep inflation “below but close to 2%.”
The outlook: Consumers spent in the third quarter the forced savings they had accumulated during the previous series of lockdowns. Now analysts expect the eurozone economy to tank again in the last months of the year. Fears of the COVID-19 pandemic may again add a demand shock to the supply shock created by the new restrictions.
But the question the ECB will first have to answer at its December meeting is whether it can really do anything to counter the second slump. Lowering the cost of credit is not what the eurozone economy may need, if the future gets darker for businesses that already took on debt during the first phase of the recession. More than ever, it looks like governments will have to pick up the baton with even more expansionary fiscal policies.