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Following a slump in the Eurozone economy during the first half of the year, activity data and confidence surveys during the late spring and over the summer showed a relatively quick initial rebound, point out analysts at Wells Fargo. They point out that while policy fundamentals still appear supportive for growth, a renewed increase in COVID-19 cases and a softening in recent data have raised some concerns. 

Key Quotes: 

“We believe that underlying policy fundamentals remain growth supportive, with Italy, France and Germany among the countries announcing further fiscal stimulus in recent months. We also believe European governments will be hesitant to re-impose the widespread, large-scale lockdown measures seen earlier this year. That said, with less confident businesses and households, and the potential imposition of further partial restrictions present downside risks to our outlook for the Eurozone.”

“The risks to our GDP growth outlook of 8% quarter-over-quarter for Q3-2020 and our longer-term forecast of a 5.3% increase for calendar year 2021, are both tilted to the downside. There is also a risk that the euro appreciates even more gradually than we currently expect over the medium-term.”