ECB: "The pandemic remains a fundamental source of uncertainty for the world economy"

• ECB, Lagarde: uncertain, uneven and incomplete recovery

• ECB Bulletin: in Italy, France and Spain the strongest decline in GDP due to Covid-19

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24 September 2020The latest ECB monthly bulletin paints a picture, between lights and shadows, of the world economy in this transition phase strongly conditioned by Covid-19: "The coronavirus pandemic remains the main source of uncertainty for the world economy . And the risks to the global outlook remain on the downside in light of the persistent uncertainty about the evolution of the pandemic, which could affect the global economy in a lasting way. Other downside risks concern the outcome of the Brexit negotiations, the risk of an increase in trade protectionism and the longer-term negative effects on global supply chains, "the bulletin reads.

"Looking ahead, a further and lasting recovery continues to depend to a large extent on the evolution of the pandemic and the success of containment policies. Uncertainty about the evolution of the pandemic is likely to mitigate the strength of the recovery in the labor market. , as well as in consumption and investment; on the other hand, the euro area economy should receive support from favorable financing conditions, the expansionary stance of fiscal policies and the strengthening of activity and demand at the world".

More generally, according to the ECB, "the most recent information indicates a strong, although not complete, recovery of the economy, substantially in line with what was expected, although the level of activity remains well below previous levels. the coronavirus pandemic ".

"The projections - specifies the ECB - indicate annual GDP growth in real terms equal to -8.0 percent in 2020, 5.0 percent in 2021 and 3.2 percent in 2022. Compared to the exercise conducted in June by Eurosystem experts, the prospects for real GDP growth have been revised upwards for 2020, while they remain almost unchanged for 2021 and 2022. The projections include two alternative scenarios, one moderate and one severe, which correspond to different hypotheses on the evolution of the pandemic ".

"In the current environment of high uncertainty, the Governing Council will carefully evaluate the new information, including exchange rate developments in relation to its implications for the medium-term inflation outlook."

"The monetary policy measures that the Governing Council has adopted since the beginning of March - the report continues - provide an essential contribution to supporting the recovery of the euro area economy and safeguarding price stability in the medium term. In particular, they support the liquidity and financing conditions ".

stimulus "There remains a need for a large degree of monetary stimulus to support the economic recovery and safeguard price stability over the medium term. Therefore, at its meeting on 10 September 2020, the Governing Council decided to reconfirm the accommodative stance of its policy monetary ".

"Overall inflation is expected to remain negative in the coming months, before returning to positive in early 2021. Furthermore, price pressures will remain contained in the short term due to weak demand, lower wage pressures and appreciation of the euro exchange rate, despite slight upward pressure on prices attributable to supply-side constraints. In the medium term, a recovery in demand, supported by accommodative monetary and budgetary policies, will put upward pressure on inflation. The indicators of longer-term inflation expectations obtained from the markets have returned to pre-pandemic levels, albeit still very contained, while the measures derived from the surveys remain at low levels ".

"The far-reaching fiscal measures adopted during 2020 led to a corresponding worsening of the cyclically adjusted primary balance, which adds to a negative cyclical component reflecting the deterioration of the macroeconomic situation. expects the subsequent improvement to be driven by the gradual lifting of emergency measures and an improvement in the economic situation ".

"Both the 540 billion euro package on the three safety nets approved by the European Council - continues the report - and the European Commission's Next Generation EU package, which with its budget of 750 billion euro will significantly support the regions and sectors most affected by the pandemic, are warmly welcomed ".

"The coronavirus pandemic - continues the ECB report - continues to have an extraordinarily large impact on the public finances of the euro area. The budgetary cost of the containment measures has been very high for all countries in the euro area. euro, although the burden and responsiveness vary from country to country. The euro area general government budget deficit is projected to increase significantly as a result of the economic slowdown and of substantial budget support, reaching 8.8 per cent of GDP in 2020, compared to 0.6 per cent in 2019. The deficit-to-GDP ratio is expected to fall to 4.9 per cent of GDP in 2021 and 3, 6 percent in 2022 ".

"The use of public loan guarantees varied from country to country, with greater use in Spain and France, while lower amounts were used in Italy and Germany."

This is what emerges from the latest ECB monthly bulletin.

"Since the implementation of the programs in April - reads the report - companies have obtained around 120 billion euros of guaranteed loans in France and around 100 billion in Spain. Compared to the gross debt of non-financial companies, the utilization was higher in Spain (around 11% of gross debt), and therefore in France (with around 5% of gross debt). Conversely, usage was more moderate in Italy (around 55 billion euros, equal to approximately 4% of gross debt) and in Germany (approximately 45 billion euros, corresponding to approximately 2% of gross debt) ".

"In Italy - explains the ECB - the scarce recourse found so far mainly reflects the operational difficulties initially present on the supply side. This situation gradually resolved and in July and August the monthly disbursement of these types of loans was higher in Italy and in other countries ".

"The crisis linked to Covid represented a triple shock for the world economy".

"Unlike past crises, this crisis hit private consumption particularly severely in the first half of 2020", it says.

"Looking ahead, if it is probable that the negative effects of the containment measures will disappear and that world production will register a gradual recovery, the persisting uncertainty about the economic and health outlook will continue to weigh on consumption, thus slowing down a more vigorous recovery of the economic activity".

"On the foreign exchange markets, the euro appreciated relatively strongly on a trade-weighted basis and against the US dollar."

"In particular, the euro appreciated strongly against the US dollar (by 4.6 per cent), reflecting a generalized weakening of the dollar in the face of an improvement in risk appetite in the context of the ongoing global recovery. it also strengthened against the Japanese yen (by 2.1 per cent), the British pound (by 1.7 per cent) and the Chinese renminbi (by 0.6 per cent) and appreciated strongly against currencies of most of the major emerging economies, in particular the Russian ruble, the Turkish lira and the Brazilian real ".