BlackRock Investment Institute

Macro insights

Looking through the stop-start cycle

New lockdown measures in Europe are likely to cause activity to contract in the fourth quarter, in our view. Yet we see economies still on track to return to pre-Covid trends if policy support remains robust. We believe Investors should look through the near-term stop-start cycle and focus on the eventual cumulative loss in GDP – still projected to be a fraction of that seen after the Global Financial Crisis.

Actual euro area GDP and growth estimates, 2019-2022

Sources: BlackRock Investment Institute, Eurostat, IMF and Refinitiv, with data from Haver Analytics, Nov. 2020. Notes: The green line shows the actual euro area GDP. The yellow line is the consensus forecast from April 2020. The orange line is our growth projection based on empirical work by the IMF and our estimate of euro area lockdown stringency based on announced measures. GDP is plotted as an index rebased to 100 in Q4 2019. There is no guarantee any forecasts made will come to pass.

Recent GDP data show the restart had been running ahead of expectations. See the green and yellow lines in the chart. We project a path for euro area GDP using empirical work by the IMF and our estimate of lockdown stringency. The restart may be disrupted in the near term, yet growth is expected to pick up to a level well above April consensus forecasts. See the dotted orange line. If fiscal policy can provide an income bridge – as it did earlier in the year – then permanent economic scarring could be limited. The activity restart should accelerate again once restrictions are lifted and as a vaccine becomes widely available.

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