Eurozone: Q2 GDP decline of more than 8% appears well within the realm of possible outcomes – Wells Fargo

According to analysts at Wells Fargo, data released on Tuesday of the Eurozone manufacturing and services PMIs provides the clearest indication yet of the economic damage the Eurozone economy could suffer from the COVID-19 virus. 

Key Quotes: 

“Should the PMI surveys stay around current levels, or fall further, a Q2 GDP decline of more than 8% quarter-over-quarter annualized, perhaps extending into a double digit decline, appears well within the realm of possible outcomes.”

“Further stimulus measures are possible and perhaps likely, with recent market discussion turning towards whether the region’s European Stability Mechanism fund could be mobilized to provide support for some of the region’s economies.”

“Still given the magnitude of the COVID-19 shock on the economy, we doubt that prospective  fiscal policy measures (as well as past monetary policy measures) will be sufficient to prevent a large economic downturn.”

“The Eurozone economy could face large contractions in activity in the coming quarters. During this period, we suspect the bias will remain tilted towards even further easing in Eurozone monetary policy and fiscal policy. From a currency perspective, the outlook suggests the euro should remain relatively subdued in the nearterm. Given the economic outlook and policy outlook, we see little reason to expect meaningful gains in the EUR/USD exchange rate for the time being.”