Davide Oneglia

We said: We expect a double-dip recession in Q1 and real GDP to expand by 4% this year.
Outcome: Consensus expectations for Q1 output have been revised down from 0.6% q/q at the start of the year to -0.8% recently. Forecasts for the 2021 growth have been downgraded from 4.6% to 4.2%.

We said: Euro area’s K-shaped recovery means German outperformance, struggling services but resilient manufacturing, and rising input costs but falling output prices.
Outcome: Germany continues to outperform the EA. Manufacturing is resilient while the services sector remains fragile. Margin pressure on producers has worsened over the last year and is the most intense since the EA debt crisis.

With the Covid-19 second wave ramping up in Europe and inflation falling further, many investors expected the ECB to bring the stimulus expected for December forward to October.
We said: “Lagarde and Lane will rather wish to wait to get more data and build consensus in the Governing Council before making any decision. At next week’s ECB meeting, expect more dovish language but no more".
Outcome: The ECB didn’t ease in October.

We said: “Amidst uncertainties about the virus limiting spending on consumer services and the still grim job market outlook, EA households seem forced to keep high cash buffers for longer”.
Outcome: As of 2020Q4, the household savings rate in France and Germany was still 7% and 6.6% higher, respectively, than a year earlier.

We said: The Covid-19 pandemic will damage domestic demand, especially services. Countries in the EA periphery are the most exposed. Limiting the transmission of negative spillovers to firms’ cash flows and to employment is crucial to avoid more serious medium-term damage from contagion. Fiscal policy will need to be stepped up significantly. Don’t write off ECB easing: serious discussions about changing the ECB’s self-imposed limits on ECB QE should be on the cards by now.
Outcome: Domestic demand collapsed, led by services, especially in tourist-dependent EA periphery. EA consensus (according to a Bloomberg survey) growth forecasts for this year were revised down from 1% to -8%. EA governments strengthened or introduced income/employment support programmes and provided liquidity to firms via guaranteed loans and equity injections causing national budget deficits to widen dramatically. Few days later, the ECB launched new liquidity measures including a €750bn asset purchase programme – the PEPP – to which the traditional asset purchase constraints did not apply.

We said:  A large negative output gap, huge labour income losses, and a sharp rise in uncertainty and precautionary savings will keep inflationary pressures subdued in the euro area for longer. Surging money and credit growth – usually considered precursors to rapid economic growth – mask fragile underlying credit trends.
Outcome: Inflation has missed consensus forecasts since the pandemic. Inflation expectations for this year (according to a Bloomberg Survey) have been revised lower from 1% to 0.3%.

We said: Fiscal support will tighten next year, but “cliff edges” will be avoided. We expect authorities, even in the financially-constrained EA periphery, to stand ready to roll over furlough schemes, public guarantee schemes and loan moratoria until the pick-up in activity gathers pace in 2021H2.
Outcome: EA governments have continued to roll over all measures, explicitly acknowledging “cliff edge” risks in case of abrupt phase out of fiscal support.