Recession Fears Return to Europe on Coronavirus Lockdowns

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European economic recovery is on hold as governments impose new restrictions to tackle the coronavirus, which could lead the region into another recession. The four largest economies in the eurozone are entering various forms of isolation, eclipsing Friday’s data that saw a record third-quarter production growth.

A new downturn sets in, governments pour in more aid and the European Central Bank pledges additional monetary stimulus amid a rapidly deteriorating situation. Vice President Luis de Guindos said stagnation or even contraction cannot be ruled out in this quarter.

The recovery of the eurozone after the first blockages of coronavirus in the spring already looked like a dead cat leap before the events of this week. Activity numbers were falling, and business and consumer confidence began to waver after the summer surge.

European stocks fell, with the Stoxx Europe 600 in its third consecutive week of decline. The impact on the cost of sovereign borrowing was muted by the purchase of ECB bonds.

Market Reaction to Europe’s Inflation
EURUSD has largely ignored recent data and last traded at 1.1676, where it has barely changed over the day.

Looking at the main components of inflation in the euro area, food, alcohol, and tobacco are expected to have the highest annual rates in October (2.0% versus 1.8% in September), followed by services (0.4 % compared to 0.5% in September). ), non-energy manufactured goods (-0.1% versus -0.3% in September) and energy (-8.4% versus -8.2% in September).

EURUSD has bounced off daily lows of 1.1661, despite policymakers firmly hinting at further easing in December. Upbeat growth in Germany could play a role in supporting the rebound as the spot trades flat at 1.1676.