In ECB’s bulletin published today, three scenarios of the economic impact of coronavirus pandemic are presented. In the severe scenario, GDP contraction could trough by -15% in Q2. Foreign demand could contract -19% this year, without returning to pre 2019 level until end of 2022.

In the mild scenario, strict lockdown is relatively short-lived, ending the course of May 2020. There will be a gradual return to normal activity thereafter and only temporary economic losses. In the medium scenario, strict lockdown also ends in May, but it’s followed by relatively stringent and protracted containment measures. Return to normal activity is delayed and output losses persists. In the severe scenario, a longer term strict lockdown period ends in the course of June. Ongoing tough containment measures will remain in place. That will significantly dampen activity across sectors of the economy until a vaccine is available, not until mid 2021.

Eurozone foreign demand will fall by around -7%, -11% and -19% in 2020, under the mild, medium and severe scenarios respectively. Foreign demand would not return to pre 2019 level before end of 2022 under the severe scenario. GDP is expected to contract by -5%, -8% and -12% under the three scenarios. Annual figure under the severe scenario reflects a quarter trough of around -15% in Q2, followed by a protracted and incomplete recovery.

Full article here.

In the post meeting press conference, ECB President Christine Lagarde said said the Eurozone is “facing an economic contraction of a magnitude and speed that are unprecedented in peacetime”. While GDP shrank by -3.8% qoq, “sharp downturn in economic activity in April suggests that the impact is likely to be even more severe in the second quarter”. Though, growth is expected to “resume as the containment measures are gradually lifted, supported by favourable financing conditions, the euro area fiscal stance and a resumption in global activity.”

Eurosystem staff macroeconomic projections indicate that GDP could contract by between -5% and -12% in 2020. Recovery and normalization of growth will follow in “subsequent years”. But the “extent of the contraction and the recovery will depend crucially on the duration and the success of the containment measures, how far supply capacity and domestic demand are permanently affected, and the success of policies in mitigating the adverse impact on incomes and employment.”

HICP inflation slowed to 0.4% in April, “driven by lower energy price inflation, but also slightly lower HICP inflation excluding energy and food”. On the basis of sharp decline in oil prices, “headline inflation is likely to decline considerably further over the coming months”. Sharp down turn in economic activity would lead to “negative effects on underlying inflation over the coming months” too. But medium0term implications of coronavirus pandemic for inflation are “surrounded by high uncertainty”.

Full introductory statement.