In the third quarter, the banks of the Eurozone they tightened the criteria for selecting businesses and households to which to grant loans. The main reason for the tightening was higher risk perceptions, which are set to increase further between October and December. For this reason, despite the fact that the credit situation was not rosy even in the summer, the second wave of the pandemic will bring with it a new credit crunch. To raise the alarm is the ECB, which in the last economic bulletin underlines how for the fourth quarter banks expect a further tightening of criteria and a drop in the demand for loans for the purchase of homes.
From the point of view of the labor market, "in the first half of 2020 the Covid-19 pandemic determined the sharpest contraction ever recorded in employment and in the total number of hours worked – continues the bulletin – while the effects on the unemployment rate were more limited due to the employment support schemes”.
Eurotower points out that, compared to real GDP contraction in the first half of 2020, the increase in the official unemployment rate has been relatively limited: from the historic low of 7,2% reached in March 2020 it reached 8,1% in August, although it is still far from the peak of 12,7% recorded in February 2013.
“In the current environment where risks are clearly tilted to the downside, the Governing Council will carefully evaluate the most recent information” and recalibrate “its tools, where appropriate, in order to respond to the evolving situation and to ensure that financing conditions remain favorable to support the economic recovery and counter the negative impact of the pandemic on the expected profile of inflation”.
Wednesday the number one of the ECB, Christine Lagarde, he specified that, “although all the options remain on the table, the Pepp and Tltro auctions have proven their effectiveness in the current scenario and can be dynamically adjusted to react to the evolution of the pandemic. This is why they probably remain the main tools for adjusting our monetary policy”.
Finally, on the price side, the ECB explains that, "on the basis of current oil prices and the related futures contracts, and taking into account the temporary reduction in value added tax in Germany, headline inflation is likely to remain negative into early 2021. Price pressures in the short term will remain contained due to weak demand, particularly in the travel and tourism sectors, as well as lower wage pressures and the appreciation of the euro exchange rate. Over the medium term, a recovery in demand supported by accommodative monetary and fiscal policies will put upward pressure on inflation. Market and survey measures of longer-term inflation expectations remain broadly unchanged at low levels.
