The coronavirus continued its spread into Europe during February, with Italy the hardest hit country by a significant margin. By the end of the month, Italy had 888 confirmed cases, but over 20 European countries were affected, including Germany and France with 57 cases apiece.
- The coronavirus is set to disrupt supply chains and demand
- Germany’s economy stagnated in Q4 2019
- Consumer price inflation picked up slightly in January
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The coronavirus continued its spread into Europe during February, with Italy the hardest hit country by a significant margin. By the end of the month, Italy had 888 confirmed cases, but over 20 European countries were affected, including Germany and France with 57 cases apiece. The Dax Index fell by 8.4% during February, while the CAC 40 Index dropped by 8.5% and Italy’s FTSE MIB Index declined by 5.4%.
“Monetary policy cannot, and should not, be the only game in town” (ECB President Christine Lagarde)
Economic activity in the euro area showed signs of picking up during February, fuelled by growth in services and a moderation in the manufacturing sector’s decline. Nevertheless, IHS Markit warned that the outlook remains “highly uncertain” in the light of the spread of coronavirus, citing disruption to supply chains, travel, tourism, and general demand. Looking ahead, the delays in February deliveries “bode ill for March” and the full impact of the virus has yet to be established.
Germany’s economy stagnated in the fourth quarter of 2019, posting zero growth following third-quarter growth of 0.2%. On an annualised basis, the country’s economy grew by just 0.4%, dampened by weak export activity and slower growth in consumer and government spending. Over 2019 as a whole, Germany’s economic growth decelerated to 0.6%, representing its lowest annual growth since 2013.
European Central Bank (ECB) President Christine Lagarde urged European governments to play their part in addressing the eurozone’s economic slowdown, stating: “Monetary policy cannot, and should not, be the only game in town … other policy areas – notably fiscal and structural policies – also have to play their part”. In a statement to the European Parliament, she also defended the central bank’s ultra-low interest rate policy, acknowledging that it has affected savings income, asset valuations, risk-taking, and property prices, whilst maintaining that it had also helped to “preserve favourable lending conditions … (and) shield the euro area economy from global headwinds”.
As a whole, the eurozone posted quarterly economic growth of only 0.1% during the final three months of 2019. While Germany’s performance was a major contributor to this broader weakness, France and Italy also played their part, contracting by 0.1% and 0.3% respectively during the fourth quarter. In contrast, Spain’s economy expanded by 0.5% quarter on quarter.
The eurozone’s annualised rate of inflation strengthened from 1.3% in December to 1.4% in January, boosted by higher prices in services, food, alcohol & tobacco, and energy.
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