ECB’s Guindos Says Euro-Area Economy Set for Another Contraction

(Bloomberg) -- The euro-area economy may shrink in the final quarter of the year as a second wave of lockdowns to combat the pandemic derails the recovery, European Central Bank Vice President Luis de Guindos said Friday.

“My personal view is that in the fourth quarter, the projection we had is not going to be met,” Guindos said at an online event. “Growth is going to be close to zero or even negative.”

Euro-area output increased 12.6% in the third quarter, and in September the ECB projected 3.1% growth in the final three months of the year. Since then, restrictions have curbed travel and shut restaurants and some shops, curtailing economic activity.

The central bank is widely anticipated to expand its monetary stimulus in December, when it will also published updated prohections.

The Bundesbank said Germany’s economy may shrink in the fourth quarter, and France is also poised for a contraction, according to statistical agency Insee. Most private-sector economists predict a drop in activity for the euro zone.

What Bloomberg Economics Says...

“We forecast the bloc’s economy will contract by 2.4% in 4Q. The possibility of strict containment measures being extended through December or an outsized behavioral response skew risks to the downside.”

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The International Monetary Fund also warned in a report on Thursday that the recovery from this year’s recession could be hurt by the resurgence of coronavirus. It urged governments and central banks not to withdraw support from the economy prematurely.

“Fiscal policy is the first line of defense, public expenditure has to focus on the first line of the pandemic,” Guindos said, praising Europe’s decision to defend its economies through a mix of monetary policy and fiscal policy.

He underscored the importance of the European recovery fund --Europe’s 1.8 trillion program funded by joint borrowing-- to help future growth.

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