Euro-area COVID-19 recovery could be L-shaped

Subject

Euro-area outlook.

Significance

The euro-area entered 2020 having grown by just 0.1% quarter-on-quarter and 1.0% year-on-year in the final three months of 2019. GDP was expected to gain around 1.0% each quarter in 2020 but the economic impacts of the COVID-19 outbreak will plunge the bloc into deep recession.

Impacts

• A coordinated euro-area fiscal stimulus package remains unlikely given political divisions between member states.
• Recession will raise fears of labour and social unrest, political polarisation and reduced support for euro-area-wide bodies and policies.
• Any euro-area bank squeezed by the tighter financial conditions to the point of collapse is likely to be taken into public ownership.