Recovery in Euro-Area Confidence Ebbs Even Before New Lockdowns

(Bloomberg) -- The recovery in euro-area economic confidence came to a halt in October, before a resurgence of the pandemic forced tough new restrictions that are now threatening to pitch the region back into recession.

A European Commission sentiment index held at 90.9 following five months of improvement. It reflects a weaker assessment in services and among consumers, and continued optimism in industry, retail and construction.

Partial lockdowns introduced in vast parts of the 19-nation region mean the outlook will likely deteriorate in the coming weeks. The labor market already looked shaky in October, with employment expectations falling.

What Bloomberg’s Economists Say...

“The alternative to fresh curbs (doing nothing) would arguably be more economically costly. As infections increase, consumers voluntarily curtail their activity [...] The cost of an untamed outbreak would therefore be substantial.”

-Jamie Rush and Maeva Cousin. Read more here

Economists and investors say the chances for a surprise European Central Bank stimulus decision on Thursday have increased, even though action is still more likely in December. Policy makers warned ahead of their meeting that the new wave of infections has come sooner than expected and poses a significant risk.

While October saw “marked improvement” in the appraisal of industry order books, production expectations dropped, according to the commission report. In services, the deterioration in the outlook for demand intensified as households grew increasingly concerned about the economy and their financial situation.

Data due Friday are set to highlight falling prices and high unemployment in the euro region. A strong pickup in gross domestic product in the third quarter will already be old news given the more recent developments in the economy.

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