Although November in Europe was characterised by rising Covid-19 infection rates and lacklustre economic data, share prices soared over the month, driven up by global optimism over the prospect of an effective vaccine.
- The ECB will continue to expand stimulus measures
- European inflation remained in negative territory
- Economic sentiment continued to weaken
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Although November in Europe was characterised by rising Covid-19 infection rates and lacklustre economic data, share prices soared over the month, driven up by global optimism over the prospect of an effective vaccine. Over November, the Dax Index rose by 14.9%, while the CAC 40 Index increased by 20.1%.
“The Covid-19 pandemic has created ‘a highly unusual recession’”
The Covid-19 pandemic has created “a highly unusual recession” that is likely to result in a “similarly unsteady recovery”, according to President of the European Central Bank (ECB) President Christine Lagarde. While welcoming the “encouraging” news about vaccines, she warned that the recovery was likely to be “rather unsteady, stop-start and contingent on the pace of vaccine roll-out”. Looking ahead, she believes that the key challenge for policymakers will be to bridge the gap until the programme of vaccination has progressed and the economic recovery can build its own momentum.
Against a backdrop of weakening economic sentiment and negative inflation, the ECB will continue to expand its stimulus measures. President Lagarde warned that inflation in the euro area is likely to remain mired in negative territory for longer than previously anticipated. The eurozone’s rate of consumer price inflation remained unchanged at -0.3% in October.
As infection rates intensified, economic sentiment in the eurozone fell for the first time since the first wave of coronavirus. According to the European Commission, confidence deteriorated particularly sharply in consumer- and service-related sectors. The decline in sentiment was particularly pronounced in Italy and France, whereas Germany’s dip was more muted. In contrast, the Netherlands posted a slight improvement in confidence.
Having shrunk by 9.8% in the second quarter and 1.9% in the first quarter, Germany’s economy expanded by 8.5% during the third quarter and exited recession, boosted by household consumption and strengthening export activity. The country’s statistical office suggested that this growth could help to “offset a large part of the massive decline in the gross domestic product recorded in the second quarter of 2020 caused by the coronavirus pandemic”.
However, business confidence in Germany continued to weaken, according to the Ifo Institute, which attributed the deterioration to the second wave of coronavirus infections that led to fresh lockdown measures and “interrupted Germany’s economic recovery”. Although the business climate improved in the manufacturing sector, sentiment in the services sector returned to negative territory, and the indicators for hotels and hospitals “absolutely nosedived”.