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In the Eurozone, household purchasing power is expected to weaken significantly in the wake of the COVID crisis due to the slowdown in productivity gains, the cost of reshoring, the cost of the energy transition, the rise in commodity prices and the rise in real estate prices. The demand for stimulation of purchasing power will, therefore, gain momentum, per Natixis.

Key quotes

“Recessions systematically give rise to a lasting slowdown in productivity for various reasons: loss of productive capital due to the decline in investment, bankruptcies, loss of human capital due to unemployment and the disappearance of the need for certain skills, growing number of zombie firms. A slowdown in productivity inevitably leads to a slowdown in real wages.”

“Public opinion and governments want to reshore production from emerging countries to the Eurozone. The problem is obviously that labour costs are far higher in the Eurozone than in emerging countries.”

“Public opinion and governments also want to speed up the energy transition to further reduce CO2 emissions. The problem is that green energy is markedly more expensive than fossil energy, since, due to the intermittent nature of production, production capacity must be significantly higher than demand, and storage costs must also be borne.”

“Commodity prices fell markedly in 2020 due to the crisis, but they are already rising, and this rise is going to push up prices and drive down purchasing power.”

“The very sharp increase in liquidity created by the ECB thanks to the monetisation of public debt will undoubtedly lead to a rise in real estate prices, thanks to the reinvestment of the liquidity created. The cost of housing (rented or purchased) will, therefore, rise, reducing purchasing power.”