Europe market review: “All necessary steps”

European countries continued to ease their lockdown measures during June; nevertheless, the World Health Organisation (WHO) warned that the region was experiencing a weekly increase in COVID-19 cases for the first time in months and called on member states to take steps to avoid a “significant resurgence”.


  • The ECB expanded its stimulus measures
  • The Bundesbank expects Germany’s economy to shrink by 7% this year
  • The region’s manufacturing sector remained severely depressed

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European countries continued to ease their lockdown measures during June; nevertheless, the World Health Organisation (WHO) warned that the region was experiencing a weekly increase in COVID-19 cases for the first time in months and called on member states to take steps to avoid a “significant resurgence”. European Central Bank (ECB) President Christine Lagarde commented: “Looking into the future has rarely been harder … the crisis is weighing heavily on the euro area economy”. She also warned that a “common shock” hitting the entire eurozone would result in less-efficient economies suffering twice the output loss of their more efficient peers.

“Looking into the future has rarely been harder” (ECB President Christine Lagarde

The ECB expanded its programme of asset purchases by €600 billion to €1.35 trillion and extended it until June 2021. Central bank policymakers expect the eurozone’s economy to contract by 8.7% this year, and then to recover in 2021. President Lagarde reiterated the ECB’s intention to take “all necessary steps within (its) mandate of price stability” but emphasised that monetary policy cannot address “more profound” questions over how the economy may look in future.  

Having already dropped sharply during the first quarter of 2020, Germany’s economy is expected to contract even more steeply over the second quarter, according to a report from the Bundesbank, which expects the country’s economy to contract by around 7% this year, recovering to pre-crisis growth levels towards the end of 2022. In comparison, the Organisation for Economic Cooperation & Development (OECD) has forecast a contraction of 6.6% for Germany this year.

Germany’s industrial output dropped sharply during April, falling by 17.9% month on month. Production of capital goods fell by 35.3% and the automotive industry posted a decline of 74.6%. The Economy Ministry commented: “Economic activity has bottomed out. The economy is now recovering as the protective measures have been successively relaxed and production in the automotive sector has been resumed”. The Dax Index rose by 6.2% during June and fell by 7.1% since the start of the year.

Although the steep declines in eurozone’s manufacturing sector steadied in May, underpinned by the easing of lockdown measures, the sector remained severely depressed, weighed down by job losses and falling new orders. Deflationary pressures continued to mount, according to IHS Markit, which reported price reductions in excess of anything seen over the past decade.


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