Eco Perspectives // 4th quarter 2020 (completed on 30 September 2020)
economic-research.bnpparibas.com
8
EUROZONE
EUROZONE RECOVERY: RUNNING OUT OF BREATH
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.
The economic recovery in the eurozone appears to be running out of
GROWTH AND INFLATION (%)
breath. After an historic contraction in Q2 2020, and a mechanical
rebound in Q3, economic activity is likely to slow significantly over the
next few quarters. Recent inflation movements are a source of concern
for monetary policy makers.
GDP Growth
Forecast
Inflation
Forecast
8
6
4
2
0
2
-4
6
8
5
.2
THE GAP HAS NOT YET CLOSED
1
.9
1.8
1
.3
1.2
0
.9
The recent stabilisation of economic indicators sends a mixed signal.
Following the lifting of lockdown measures, economic activity bounced
back strongly but has since stabilised. The composite Purchasing
0.3
-
1
Managers Index (PMI) for the eurozone slipped back from 54.9 in
-
-
July to 51.9 in August. Activity keeps growing continues at a slower
pace than in previous months. A similar picture emerges in services,
where the PMI fell from 54 in July to 50.5 in August. In manufacturing,
the PMI stabilised at 51.7 in August. The services sector continues to
suffer from cautious consumer behaviour. Services, which account for
a majority of household expenditure (more than 50% of the total in
-
8.0
-
-
10
12
2018
2019
2020
2021
2018
2019
2020
2021
CHART 1
SOURCE: BNP PARIBAS GLOBAL MARKETS
2
the eurozone) , have suffered in particular from a lack of consumer
confidence in the region. The consumer confidence index has seen no
further improvement since June and remains below its levels in the
months leading up to lockdown (-14.7 in August, from -11.6 in March
and -6.6 in February). This observation can be observed in retail sales
dynamic. Although retail sales figures are an incomplete record of final
household consumption, they suffered a sharp fall since when they
have posted only a timid recovery. They grew by only 1.3% in June
REAL GDP GROWTH
Real GDP (100 = Q4 2019)
05
1
1
(
year-on-year), and then slowed to +0.4% in July.
00
In all, we expect eurozone GDP growth to bounce back to 9.0% q/q in
Q3 2020, having fallen by 12.1% in Q2 2020, before slowing markedly,
to 1.5%, in Q4. Growth is likely to average -8.0% over the whole
year 2020, before rebounding to 5.2% in 2021. These trends will not
allow the economy to return to pre-crisis levels within our forecast
horizon (Figure 2). Significant differences exist between individual
eurozone countries. The differences in speed of recovery weigh on the
performance of each country given the zone’s integration, notably in
terms of trade. High level of uncertainty surrounds the macroeconomic
scenario, in particular caused by the resurgence of the epidemic in some
eurozone countries. According to ECB estimates, under a pessimistic
scenario (a big second wave of the epidemic and enhanced protective
health measures), real eurozone GDP at the end of 2022 would still be
nearly 6% below its pre-crisis level.
9
5
90
8
5
0
8
Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021
CHART 2
SOURCE: AMECO, BNP PARIBAS
3
mid-2016. Underlying inflation fell back considerably, hitting a record
low of +0.4%. In more detail, the sharpest decline in prices since the
beginning of 2020 has come in the transport sector, which is hardly
affected by the abrupt fall-off in tourist numbers since the beginning
of the pandemic. Inflation figures for recent months should be treated
with some caution. Some of the slowing of prices comes in shifts in
INFLATION HEADACHES
In this macroeconomic situation that remains depressed and uncertain,
deflationary pressures are mounting. In August, total eurozone inflation
fell into negative territory, at -0.2% y/y, for the first time since
1
The PMI is based on data from a survey of business leaders. The survey offers a reliable picture of the economic health of various sectors of the economy (manufacturing,
services, construction). Phases of contraction and expansion lie either side of the 50 point threshold.
2
3
B. Cœuré, “The rise of services and the transmission of monetary policy”, Speech at the Conference on the World Economy, May 2019
Underlying inflation is corrected for volatile components (energy and food) as well as alcohol and tobacco.
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