Via the FT:
Europe’s economy is sliding towards a double-dip recession, with economists warning that rising coronavirus infections and fresh government restrictions on people’s movement are likely to cut short the region’s recent recovery.
Germany, France, the UK, Italy, Spain and the Netherlands have all announced measures in the past week to contain the second wave of Covid-19 infections, with more expected in the coming days.
Belgium on Sunday announced the closure of all bars and cafés for four weeks, while Switzerland widened its mandate for wearing masks. France put into effect a night curfew in Paris and other cities from Saturday.
…These predictions that the eurozone economy will slide back into recession — albeit a much shallower one than earlier in the year — are bad news for the European Central Bank, which only last month forecast fourth-quarter growth of more than 3 per cent. Another setback would imperil the ECB’s belief that the eurozone economy will return to its pre-pandemic size by 2022.
…Most analysts expect the ECB to react to a flagging economy that recently slid into deflation by adding an extra €500bn to its emergency bond-buying programme in December.
…In a further sign that more monetary easing is likely, Robert Holzmann, the normally conservative head of the Austrian central bank and ECB council member, said: “More durable, extensive or strict containment measures will likely require more monetary and fiscal accommodation in the short run.”
Yep:
So far, deaths have been contained but they are rising again and will keep doing so despite the young being sicker this time:
The economic fallout may well be worse than the article suggests. There is a natural equilibrium in the virus. The more governments try to stay open, the more it spreads, and the more the private sector closes down. Demand has rebounded handsomely to now but won’t last under those conditions:
Uh oh:
It is already turning:
Supply has struggled more:
Credit markets are awake to it:
But the ECB has more work to do:
Europe has shot its fiscal bolt. The ECB is the only fallback now. If the central bank does get more aggressive, as it should, just as US election risk skyrockets and its own fiscal support fails amid a resurgent virus, then EUR is going to fall and DXY rise.
Most importantly, you can think of the AUD as the EUR with an amplifier attached:
Beware the Australian dollar!
