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”.
