Investor Alert

Nov. 2, 2020, 1:12 p.m. EST

European economic recovery was swift — but here’s why it’s likely to be brief

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By Pierre Briançon

The European Central Bank’s governing council said on Thursday that it would “recalibrate” its monetary policy tools at its next meeting on Dec. 10. ECB President Christine Lagarde said the move was needed in light of the “clear deterioration” of economic prospects expected in the last months of the year.

Read:   ECB Keeps Policy Unchanged but Hints at December Decision

The outlook: Consumers spent in the third quarter the forced savings they had accumulated during the previous series of lockdowns. Now analysts expect the eurozone economy to tank again in the last months of the year. Fears of the COVID-19 pandemic may again add a demand shock to the supply shock created by the new restrictions.

But the question the ECB will first have to answer at its December meeting is whether it can really do anything to counter the second slump. Lowering the cost of credit is not what the eurozone economy may need, if the future gets darker for businesses that already took on debt during the first phase of the recession. More than ever, it looks like governments will have to pick up the baton with even more expansionary fiscal policies.

Read: Why Europe Puts Economic Hopes in a Biden Presidency

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