Perspectives

After the recovery, the questions

Eco Perspectives // 4th quarter 2020 (completed on 30 September 2020)  
economic-research.bnpparibas.com  
2
EDITORIAL  
AFTER THE RECOVERY, THE QUESTIONS  
For several weeks now, the improvement in economic data has been slowing down. On the one hand, this loss  
of momentum is unsurprising as it followed a substantial rebound which could not last. On the other hand, this  
development could reflect the economic reaction to the rise in the number of new Covid-19 cases in many countries.  
Furthermore, the level of uncertainty which remains very high, affecting households and businesses, should also  
play a role. As a result, monetary and especially fiscal policies remain crucial in ensuring that the recovery continues  
pending the release of a vaccine.  
The pace of improvement in economic data is slowing down. This  
EUROZONE: CONSUMER SURVEY, UNEMPLOYMENT EXPECTATIONS  
observation can be interpreted in one or two ways. The first is that this  
loss of momentum is unsurprising, perhaps even inevitable. It follows  
a substantial rebound which in turn followed a collapse in survey data,  
How do you expect the number of people unemployed to change  
economic activity and demand during lockdown. This rebound was  
mechanical: businesses that had closed, or slowed to a crawl, have  
been able to start up again since lockdown ended. Consumption has  
also picked up. This again was a mechanical response. It had fallen  
because consumers could no longer go to shops and restaurants,  
rather than because of a lack of cash. Quite the contrary, savings rates  
rose sharply as a result of lockdown. After such a strong movement, it  
is only normal that the improvement in the business climate from one  
month to the next should slow down.  
over the next 12 months ? (net balance in %)  
7
6
5
4
0
0
0
0
30  
2
0
0
0
1
The second interpretation is less reassuring. It is based on the  
observation that certain survey data have weakened as of late. This  
is the case for the purchasing managers’ index for the services sector.  
Services are more exposed to the health risk than manufacturing, so  
this fall could reflect the economic reaction to the rise in the number  
of new Covid-19 cases in many countries. But this is not the only factor.  
The outcome of negotiations on the future trading relationship between  
the UK and EU remains highly uncertain. A no-deal departure would  
represent a significant additional shock for the UK economy but also for  
those of its major European trading partners such as Ireland, Germany,  
the Netherlands and Belgium. In the US, there are growing concerns  
that the result of the presidential election will be challenged, which  
could create several weeks of considerable uncertainty for financial  
markets.  
-
10  
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020  
CHART 1  
SOURCE: EUROPEAN COMMISSION, BNP PARIBAS  
IFO DISPERSION - UNCERTAINTY OF GERMAN COMPANIES  
7
2
70  
68  
6
6
Over and above the effect of these factors that will play a role in the  
short term, the health situation will remain a key determinant of  
consumer and business behaviours. New measures to stop the spread  
of the virus will have not only a direct influence on demand and econo-  
mic activity, but also an indirect effect as a result of increased caution.  
For households, forced saving during lockdown has created a substan-  
tial reserve of purchasing power. The possible use of this will never-  
theless depend on confidence in future prospects, most notably when  
it comes to the labour market. Although expectations of unemployment  
in the euro zone have fallen recently, they remain at a high level. In the  
US meanwhile a number of major companies have recently announced  
substantial job cuts. Forced saving could thus be transformed into pre-  
cautionary saving.  
64  
62  
6
5
5
5
5
5
0
8
6
4
2
0
0
5
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20  
CHART 2  
SOURCE: IFO , BNP PARIBAS,  
For businesses, surveys in Germany and the US show that, remain accommodating for a long period and, if needed, will be relaxed  
unsurprisingly, levels of uncertainty remain very high, albeit lower still further. However, as Jerome Powell, Chair of the Federal Reserve,  
than they were a few months ago. Given lower profit margins and, for observed, “...these are lending powers and not spending powers [...] a  
1
many, increased debt ratios due to the lockdown, company investment loan that could be difficult to repay might not be the answer.” Fiscal  
plans risk being held back. For these reasons, the Federal Reserve and policy will therefore remain crucial in ensuring that the recovery  
the ECB have both sent out a very strong message: their policies will  
continues pending the release of a vaccine.  
1
Testimony of Jerome H. Powell, Chair of the Federal Reserve Board of Governors before the  
Committee on Financial Services of the US House of Representatives, 22 September 2020  
The bank  
for a changing  
world  
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