In our view, there is no debate that the ECB will be compelled to ease further monetary policy by year-end, more probably at the December meeting when the new staff projections will be released. After a strong rebound in economic activity in Q3, following the lift of the lockdown, there is an accumulation of evidence pointing out to the risk of outright quarterly contraction in Q4 on the back of further COVID-19 spread and new restrictions. Just today, as Europe is struggling with rising coronavirus cases, the Greek prime minister has announced new measures in televised address, Czech Republic has re-imposed a semi-lockdown starting today, and a curfew has been decided in two Italian regions. We believe the most vulnerable countries are Spain, France and the Netherlands with GDP contraction potentially ranging between -1% and -1.3% next quarter.
At this point, this is a guess as we lack hard data to confirm this scenario. But there are already indications of slowdown in the economic recovery. This morning, Germany’s GfK consumer confidence for November was out at a 4-month low, at -3.1 versus -3.0 estimated. The survey found that more than half of respondents had “major concerns” over the economic impact of the virus on them personally. In addition, the widely-commented Google’s mobility statistics tend to corroborate that the eurozone recovery is going backward. After a strong but partial rebound in Q3, the visits to retail & recreation stores, one of the most affected sectors by the pandemic, are going down again. One of the most worrying trends is in Spain where the visits are down almost 30% compared with the baseline as COVID-19 cases rise sharply and semi-lockdown measures are re-imposed. Based on that, we think there is a significant risk of a negative economic surprise in Q4 in the eurozone.