The Q3 2020 rebound in the Eurozone GDP growth was stronger than expected: 12.7% q/q, compared to expectations of 10.5%. Of the region’s four biggest economies, France reported the strongest rebound followed by Spain, Italy and Germany. This rebound only partially erased the massive negative shock earlier this year. In Germany, France and Italy, GDP was still about 4% below the Q4 2019 level, while Spanish was still down by 9%. All components of demand contributed to French GDP growth. Sector differences reveal the heterogeneous impact of the shock. In all four countries, the rebound was largely mechanical, but other factors also came into play. Emergency measures to offset the impact of the lockdown last spring constituted a strong support
Despite a significant and higher than expected rebound in the third quarter (+12.7% q/q according to Eurostat, from -11.8% in Q2), the y/y contraction in GDP remains significant albeit lower (-4.3%, from -14.8% in Q2). In contrast to prevailing macroeconomic trends, credit impulse (defined as the annual change of the annual growth rate of bank loans) to the private sector increased very slightly in September 2020, following a decline from 1.9% in May 2020 to 0.8% in August 2020...
The main economic news is the publication by INSEE, on Friday 30 October, of its preliminary estimate for French GDP growth in Q3. The surprise has been on the upside, as the figure of 18.2% q/q growth is higher than our forecast of a 16% q/q gain. The rebound has been as spectacular as the collapse that preceded it (-5.9% q/q in Q1 and -13.7% q/q in Q2), but did not make up all of the ground lost: GDP is still 4% lower than its level at end-2019. All components of GDP showed better than expected improvements. The contribution from changes in inventories, which was more negative than expected, took a little of the shine off the recovery...
According to the Pulse, activity in Germany recovered strongly in the past three months. The blue area of the chart spread out further compared to three months ago (demarcated by the dotted line). Activity in the manufacturing sector strengthened, on the back of well-filled order books. Nevertheless, in August (last observation), activity remained around 10% from levels seen a year ago. In particular, production of investment goods remained weak as low utilisation ratios and high uncertainty weighed on capital expenditure. In the car industry, production was even almost 30% lower from last year...
The Covid-19 health crisis is an historic shock for the eurozone economy. The economic policy response has been substantial and rapid, and this is particularly true for the monetary policy adopted by the European Central Bank (ECB). The ECB has notably introduced an emergency asset purchasing programme, the Pandemic Emergency Purchase Programme, or PEPP. In June, its envelope has been increased to the current level of EUR 1,350 billion. Thus, since March 2020, monetary policy has had a significant effect on long-term interest rates, improving financing conditions for eurozone member states and also for the private sector
Has household consumption, the driving force behind French growth, stalled? Or was it actually in the process of rebounding? In 2019, household consumption rose at an average annual rate of 1.5% in real terms, which is considered to be a disappointing performance. But “disappointing” on what grounds and from which standpoint? Are we really dealing with a feeble rebound? These are difficult questions to answer, since everything depends on the perspective we take and the determinants we look at. In this article, we will try to put household consumption into context, and provide answers and explanations for the above issues. In a descriptive analysis in part one, we examine household consumption’s role as a growth engine, its momentum and composition. The second part is explanatory
Most economic activity indicators have continued to improve recently. That said, the idea of a V-shaped recovery is already forgotten. While the economy is still far from its pre-crisis level, the recovery seems to be running out of steam...
The economic recovery slowed down in September. That said, and as clearly shown on our barometer, the 3-month trend has continued to improve for most indicators – a logical process with the catching-up effect during the summer period...
After keeping the epidemic at bay for most of the summer, Italy is now facing a strong resurgence in the number of Covid-19 cases. Last Tuesday (October 13), the government decided to tighten health restrictions, including the closure of restaurants, cafes, and nightclubs at midnight...
New mortgage lending fell by 33% year-on-year in the second quarter of 2020, the steepest decline since 2008. British lenders have been more cautious since the beginning of the year. This is evidenced by the decrease of 4.0 percentage points (pp) in the share of loans with a loan to value (LTV) figure in excess of 75%; the bulk of this concerns loans with an LTV between 75% and 90% (-3.2 pp). To tackle this trend, and with Nationwide’s property price index continuing to rise, the UK government plans to boost home ownership by encouraging loans with an LTV of up to 95%
Although the United Kingdom officially left the European Union on 31 January 2020, trade relations between the two trading blocs remain intact during a transition period. Barring a spectacular turn of events, this period will end on 31 December. Whatever happens, the UK is heading towards an exit from both the EU’s single market and customs union. This means that it will be a “hard” Brexit. And it could be the hardest possible if the two parties failed to agree on a free trade agreement. In fact, UK and EU negotiators have just completed their ninth round of talks – the last initially planned – but there are still major divergences
The Hungarian economy was hit particularly hard by the effects of the Covid-19 pandemic in the 2nd quarter of 2020, due to the weight of exports in its GDP. The shock seems to have been absorbed relatively well, with the government and central bank focusing on supporting the labour market and introducing the necessary moratoriums on interest payments and loan repayments. The stimulus measures introduced have been constrained in particular by the need to avoid an excessive depreciation of the forint. The reduction in government debt, interrupted this year, is likely to get back on track quickly, within the framework of an unchanged strategy: maintaining a moderate corporate tax in order to continue to attract foreign investment in the manufacturing sector.
The economic position improved significantly over the last three months compared to the three months prior. The recovery in the euro zone seems to have stalled...
Even 30 years after reunification, income differences persist due to a productivity gap in the new Länder. Productivity is about 20% lower than in the rest of the country. The largest income differences are in the manufacturing sector, as headquarters and research centres remain concentrated in the West. Many young people have moved from East to West attracted by higher wages and better living standards. Between 1991 and 2016, the new Länder lost about one quarter of their working-age population. East and West have become closer demographically. Net migration is actually around zero, as income prospects in the East have improved. In addition, some regions in the West are now also experiencing a rapid ageing of their population, as has been the case in the East.
After a more vigorous than expected recovery following the end of lockdown, the trend now seems less energetic. There is still lost ground to make up and the end of the year, beset by uncertainty on the health and economic fronts, is likely to see a marked decline of growth. In our central scenario, there is no return to pre-crisis GDP level before the forecast horizon at the end of 2021. Coupled with this, deflationary pressures are building, and the strengthening of the euro intensifies this dynamic. So far the European Central Bank has been patient, but has indicated its willingness to take new measures. If the current situation persists, an extension of emergency monetary measures, in terms of both size and duration, looks likely.
A strong rebound is expected in Q3 (7.2%) following the progressive lifting of restrictions. Nevertheless, the recovery is likely to remain slow and bumpy at times, at least until there is a Covid-19 vaccine or a better treatment. Thanks to the widespread use of furlough, the labour market has held up reasonably well. However, the scheme may also have been delaying a necessary restructuring, which could weigh on the long-term performance of the economy. The huge increase in public spending to ease the economic consequences of the virus have forced the authorities to activate the debt brake exemption clause. The excess debt will be repaid over 20 years starting in 2023.
After a rapid restart in May and June, the economy was back to 95% of its normal level in August. However, the improvement is now slowing as the automatic catch-up effects fall away and as substantial disparities between sectors and persistent public health constraints and uncertainties remain in play. Even so, Q3 is expected to see a substantial rebound (of around 15% q/q). It will be in Q4 that growth is likely to fall back like a soufflé. This period will determine the next chapter in the recovery. Hence the significance of the stimulus package in its double role of softening the blow from the crisis and boosting the recovery now under way. We estimate that this package will add 0.6 of a point to growth in 2021, taking it to 6.9%, after a contraction of 9.8% in 2020.
In Q2 2020, real GDP fell by 12.8%, dropping down to values recorded in the 1990s. A weakened domestic demand was the main driver of the recession, with households reducing their expenditure and investment falling by 15%. The contraction became widespread. The real estate sector sent mixed messages: in Q1 2020 prices went up while transactions experienced a sharp decline. Latest data have signaled a rebound of the economy, even if the scenario remains uncertain. The strength of the recovery will depend on the behaviour of businesses and households, which will in turn be affected by the evolution of the pandemic. In the real estate sector, both prices and transactions should experience a sharp decline by the end of the year. Transactions should only partially recover in 2022.
The Spanish economy registered a record contraction of 22.7% in the first half of 2020. With the public deficit likely to rise above 10% of GDP this year, the government faces some difficult decisions, notably on the terms and conditions of its temporary layoff scheme (ERTE). The recovery in industrial production since the easing in lockdown restrictions in May is encouraging. However, this only partially compensate for the slow pick-up in activity in other sectors. The final quarter of 2020 will be a pivotal moment. A substantial programme of support for employment and investment (under the recovery package announced this autumn) is needed, while narrowing down support more specifically towards the sectors lastingly affected by the crisis.
Economic activity contracted less than in the neighbouring countries (-8.5%). Hard data confirm a rebound in Q3, although social distancing rules are weighing on activity, in particular in services. Thanks to the substantial financial buffers, the government can cope with the considerable costs caused by the Covid-19 pandemic. In 2021, the deficit is projected at around 5% of GDP and the debt ratio may end up just above 60%. The centre-right coalition is likely to lose the majority at the next general election in March 2021. If the social democrats and greens do well, a purple coalition would be possible.
We expect the Belgian economy to lose 7.5% of its size this year and grow by 4.6% next year. Consumption is on course for a strong recovery but corporates remain hesitant to invest, with government interventions expected to pick up some of the slack. Government formation talks are likely to have entered a final phase. The new coalition will have its work cut out for it, as both supportive measures in the short term and a deficit-reduction program in the medium term are needed.
Finland’s economy was showing signs of weakness even before the Covid-19 pandemic started – indeed, GDP contracted a bit in the fourth quarter of 2019. In spite of that, the economy has been one of the most resilient in Europe. That is notably because the pandemic has been relatively contained, allowing the authorities to impose softer restriction measures. Another reason is the substantial support provided by the government.
Despite managing well the epidemic, Portugal has experienced a severe economic shock in Q2. Real GDP plunged by 13.9%, pulled down by sharp falls in goods and services exports (-36.1% q/q) and private sector consumption (-14.0% q/q). Investment dropped (8.9% q/q). The country has been heavily impacted by the collapse in tourism inflows and foreign activity, particularly in Spain. External factors could also hamper the recovery, particularly given the surge in new Covid-19 cases in Spain. Nevertheless, the improvement in public finances operated in recent years should translate into a government deficit for 2020 smaller than in other European countries – around 7.0% of GDP according to government estimates. This provides relatively more leeway to support the recovery.
While UK GDP has bounced back since May and has made up half of lost ground caused by the Covid-19 pandemic, the economic crisis is still far from being over. In particular, concerns are mounting over the labour market, as the government’s furlough scheme will be terminated in the next few weeks. Meanwhile, the end of the transition period that maintains the UK in the EU single market and customs union is coming up fast. Disagreements during the negotiations raise fears about the UK leaving without a trade agreement, which could have an even bigger impact on the economy in the long term than the current crisis.
The Covid-19 pandemic has led to the most severe recession in Germany’s post-war history. The sudden drop in revenues in combination with only partly adjustable costs has led to a fast depletion of firms’ cash buffers. Business felt compelled to reduce inventories, cancel orders and defer investment projects. This had the effect of deepening the recession. It might be tempting to think that investment could quickly regain traction again, as it did following the Great Recession in 2008-09. This sounds too optimistic. European Investment Bank (EIB) researchers estimate that the European corporate sector could have lost revenue between 13% and 24% of GDP because of the Covid-19 pandemic[1]
