Lagarde lines up more stimulus as recovery loses momentum

Tom Rees
·2-min read

The eurozone economy faces a “very negative” November as Covid cases mount and countries across the Continent are plunged back into lockdown, the European Central Bank (ECB) has warned as it lined up another stimulus boost.

President Christine Lagarde said the economy is “losing momentum more rapidly than expected” as forecasters predicted that tough new restrictions in Germany and France will trigger a feared double dip downturn.

Speaking after a meeting of the ECB's governing council, Ms Lagarde said that the rate-setters have unanimously decided to take more action in December to fight off economic carnage caused by a second wave.

She stressed that officials are already working on how to “recalibrate” the ECB’s tools and promised to respond “very heavily” with stimulus again.

Despite the recovery being derailed by new restrictions, the ECB left its deposit rate in negative territory at minus 0.5pc and resisted expanding its €1.35 trillion quantitative easing programme, the central bank's vast bond-buying programme.

Economists said Ms Lagarde was committing to “go big in December” with new stimulus.

Carsten Brzeski, of ING, said: “Lagarde could not have repeated the main message of today’s meeting more often: there will be additional stimulus in December."

He said the ECB has opened the door to cutting interest rate deeper into negative territory, but predicted that a €500bn increase in its bond-buying blitz is more likely.

Andrew Kenningham, of Capital Economics, said: “With the region’s two biggest economies about to enter fresh national lockdowns, and others likely to follow suit, we would not rule out the possibility that the Bank moves even before then."

City forecasters warned that “winter is coming” after slashing their growth forecasts as countries move into lockdowns more severe than previously feared.

German GDP will slide 0.5pc in the final quarter compared to the previous three months, Deutsche Bank predicted, while Capital Economics warned output in France will drop 2.5pc.

Ms Lagarde said: "We expect the month of November to be very negative.

"While activity in the manufacturing sector has continued to recover, activity in the services sector has been slowing visibly." 

She added that there has been a "clear deterioration" in the economic outlook as Covid restrictions are tightened, with policymakers expecting the region to be stuck in dangerous deflation territory until next year.

Figures released tomorrow are expected to stoke deflation worries by confirming that prices in the region fell for a third straight month in October.