Our Economics department keeps track of all the important developments in the financial markets in both advanced economies and emerging markets. We will be publishing weekly briefings with analytical assessments of the current macroeconomic and financial market situation. Find out more about the EIB Group's response to the crisis


  • To take stock of multiple short-term indicators and strengthen our understanding of current and prospective economic developments, we have developed a coincident indicator of economic activity and a heat map of the most exposed EU economies, based on a sectoral approach (Section 1). Due to the specific nature of the shock, hitting services and global value chains substantially, longer-lasting impacts seem to be unavoidable, reinforcing the view that a U shape recovery is the most likely outcome. The majority of recent economic forecasts continue to point to a severe recession this year, with the euro area economy shrinking two-to-three times as much as during the 2008-2009 global financial crisis. The contraction of economic activity is expected to be more severe in some countries, due to their economic structures and the severity of pandemic itself. A number of sectors are set to contract at an unprecedented pace in March and April, as the soft indicators show.
  • EU countries have begun to discuss gradual lifts of the containment measures, while introducing sizable policy packages in support of the economy (Section 2), albeit with significant differences across countries. At the euro area level, the European Central Bank (ECB) has further stepped up its crisis response toolkit by introducing new collateral easing measures for banks. The Eurogroup agreed upon measures worth more than EUR 500bn on April 9, including the EIB Guarantee Fund for EU businesses, the European instrument for temporary support to mitigate unemployment risks in an emergency (SURE) and the European Stability Mechanism  (ESM) window based on the precautionary credit line. Further work on a Recovery Fund was also set.
  • Financial conditions remain tight. The recent pick up in valuations, especially in equity markets, has only partially reversed the losses made over the past two months (Section 3). There has been a record number of downgrades in the corporate sector – particularly in the oil and automotive sector – and, to a much lesser extent, for banks. So far, European sovereigns (with the notable exception of the UK) have been immune to downgrades, although Belgium, Croatia, Cyprus and Malta had their outlook lowered in March. Outside the European Union, several sovereign downgrades have materialised, including South Africa, Argentina, Nigeria. International financial conditions remain tight for the emerging markets asset class against the backdrop of massive capital outflows observed in March.

1.Evolution of the COVID-19 pandemic and expected economic impact

As of 8 April, almost 1,500,000 infections have been confirmed and more than 80,000 people have died of COVID-19 or virus-related complications. Over 300,000 patients have recovered. The epicentre of the virus has moved from Europe to the US. While the heaviest death toll remains in the European Union at the moment, infections seem to have plateaued in most of the Union (Figure 1).

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Economic data and forecast continue to point to a very deep recession this year. German industrial output is expected to post a pronounced drop over the next three months according to the latest reading of the Ifo index, which fell to -20.8 in March (from +2 in February), the biggest drop since the start of the survey in 1991. Growth forecast for German economy, complied twice a year by Germany’s top five economic research institutes on behalf of the government, point to a contraction of 4.2% this year, with a strong rebound next year to 5.8%1Banque de France expects GDP to shrink by 6% in the first three months of 2020, the most significant decline since WWII and similar to Q2 1968 when student-let protest movements transformed the country. The central bank added that GDP would probably decline by 1.5% for every two weeks of confinement. UniCredit also released new forecasts, showing that the euro area economy could shrink by 13% this year, with contractions ranging from 18.6% in Greece, 15.5% in Spain, 15% in Italy, 13.8% in France, 10% in Germany and 9.1% in Austria. While this is now one of the most pessimistic forecasts for this year, UniCredit also expects a robust rebound, at 10% in 2021, which is not the case for a majority of other forecasters. Newly released forecasts by IHS Markit expect eurozone growth to contract by 4.5% this year before recovering to 1.2% in 2021. All in all, the majority of recent economic forecasts, point to a severe recession this year, with the euro area economy shrinking two-to-three times as much as during the 2008-2009 financial crisis, with a strong disagreement on 2021 growth. The considerable differences in projections by major forecasting institutions underscore the considerable uncertainty faced by the European and global economy. Against this backdrop, further revisions of growth figures for 2020 and 2021 are to be expected.

Zooming in on services and car manufacturing provides additional insights on the magnitude of the hit for some sectors of the EU economy. We take a closer look at Services Purchasing Managers’ Index (PMI) and car registrations, as they are among the sectorslikely to be hit hardest by the shock. A sudden stop in car registrations can be observed across in several European countries. In Italy, car registration declined by 85% in March, while in France and Spain they are down 72% and 69% respectively (Figure 2). Services PMI also dropped dramatically, to 17.4 for Italy (the minimum observed during the 2008-2009 crisis was 37.2) and to 27.4, 23 and 31.7 for the other three countries (Figure 3).


In addition to PMI and European Commission survey indicators, we use a wide range of data to build a coincident indicator of economic activity. These coincident indicators are a widely used tool in macroeconomics to ssummarise all the available information at a given point in time2. The chart below depicts coincident indicators for the four largest EU countries (Figure 4), which are at the moment also hardest hit by the pandemic. The coincidence indicator3 depicts a substantial decline of economic activity in all four countries, with a particularly sharp drop for Italy. This is hardly surprising, given that Italy was the first country in Europe to be hit by the shock and hence the first one to impose strict containment measures.


Most forecasts crucially depend on the assumptions we make on how long it will take to get back to normal. Several observers suggest that in a few months, the most acute phase of the virus will be behind us. Yet, some social distancing measures are likely to remain in place longer, and for some sectors the recovery will be particularly gradual. To have a better sense of what firms are expecting, we take a closer look at the forward-looking component of the European Commission Survey, more specifically the “Expectations of demand in the next three months” for the services sector (Figure 5) and the “Production expectations” for manufacturing sector (Figure 6) from the European Sentiment Indicator. They provide valuable insights into the most significant sectors of the EU economy.

With a few exceptions, the ranking of the most affected sectors is rather similar across EU member states at the current juncture. It is, however, likely that the negative country impact will be shaped by the respective weight of the most affected sectors in the overall structure of the economy. Moreover, some general considerations are due: the loss in demand for some consumer non-durable manufactured products (Figure 6) will not be recovered (i.e. the spring fashion collection) but after some time, the economy will gradually normalise. Purchases of durable goods will likely be postponed for as long as the crisis lasts and the same will happen to investment goods, with corporates postponing capital expenditures. In the services sector (Figure 5), normalisation could be, however, longer. For instance, services that are linked to people’s movement, such as tourism, travelling and the ones involving crowded locations, such as restaurants, have come to a complete stop. It is unclear how long it will take to resume previous consumption patterns. However, it is likely that consumer behaviour will remain impacted for a prolonged period and that some components of services will take very long to recover fully. In other words, while a progressive relaxation of containment measures to get people back to work can happen sooner, going back to a 'normal' social life will probably take much longer. Meanwhile, pharmaceuticals, telecom and IT services could experience stronger demand now and in the future.

An initial assessment of most exposed sectors in terms of value added by Member States shows that some countries are more exposed to shock than others. This assessment is also conditional on policy measures undertaken to support demand (particularly for investment goods by corporate and durables by consumers) and the evolution of the pandemic, i.e. the length of containment measures (particularly affecting services). Figure 7 compares the exposure of different EU countries to the potentially most hit sectors. The pink columns refer to negatively affected industries; the blue columns represent the positively affected industries. In the lower part of the figure, in the pink columns, the cells highlighted in green are showing the countries for which the specific industry has a higher share (on total value added in that country) than the average, and the darker the colour, the higher the share. In the case of the red colour (the darker, the lower) the countries’ share is lower than the average. For positively affected sectors (those in the blue columns) red is the colour highlighting higher shares and blue is the colour for lower shares. The upper part of the table simply ssummarises the countries with higher shares.


1. These forecasts were made jointly by Ifo, the German Institute for Economic Research in Berlin, the Kiel Institute, the Halle Institute for Economic Research and RWI in Essen. They also expect the public deficit to reach 4.7% this year and public debt to increase by about 10 p.p., to 70% of GDP.

2. There are several examples of coincident indicators, in Europe the EuroCoin is probably among the most famous ones. The methodology used in this note is similar to the Chicago Fed National Activity index. https://www.chicagofed.org/publications/cfnai/index

3. It encompasses more than 100 time series for each country, with a delay of maximum two months. It combines all the answers given in business and consumer confidence surveys, consumer prices, producer prices (various goods and sectors) industrial output, export, statistics on orders and on sales and some financial indicators. 

2.Policy response

Some EU Member States have announced new policy measures to mitigate the economic impact of COVID-19 and moved on with the implementation of approved packages. Guarantee programmes have also been stepped up. Some of the new measures include:

  • Italy adopted  a new support package (“liquidity decree”) that provides for public guarantees for EUR 400bn worth of loans and investments to support businesses of any size and the strengthening of anti-takeover rules.
  • Germany introduced a new guarantee instrument to speed up liquidity provision to SMEs, offering qualifying companies loans from banks, backed by a federal guarantee covering 100% of the loan amount through KfW, Germany’s national promotional bank.
  • The Croatian government introduced an additional working capital loan scheme for SMEs, a set of measure to help the agriculture sector, increases in the minimum wage as well as payments for its contributions and temporary tax exemptions.
  • In Romania, new support measures include deferral of payments for healthcare and social contributions, utilities payments and an extension of loan repayments for 9 months for all debtors.
  • Cyprus introduced new legislation granting government guarantees to loans for enterprises and self-employed workers, totalling up to EUR 2bn. The country also adopted  a suspension of the repayment of capital and interest instalments for loans to financial organisations, until the end of the year, covering natural persons, self-employed workers who are current in their obligations, as well as credit institutions such as loan management companies and insurance companies. .
  • Hungary announced additional economic measures, setting up two funds: one to focus on protective measures against the spread of the pandemic (EUR 1.8bn), and another one to mitigate its economic impact (EUR 3.7bn). In parallel, the Central Bank of Hungary also announced further measures.  

The ECB announced a new, additional package of temporary collateral easing measures1, to facilitate an increase in bank funding against loans to corporates and households. The package is complementary to other measures recently announced by the ECB, including additional longer-term refinancing operations (LTROs) and the Pandemic Emergency Purchase Programme (PEPP).

Measures worth more than EUR 500bn were agreed at the Eurogroup meeting April 9. These include the EIB Guarantee Fund for EU businesses, the European instrument for temporary support to mitigate unemployment risks in an wmergency (SURE) and the ESM window based on the precautionary credit line (ECCL). Further work on a Recovery Fund was also set2.

The United States made its first steps toward the implementation of a USD 2 trillion package. The Small Business Administration (SBA) launched a range of new guarantee programmes for businesses affected by COVID-19 outbreak. These include loans designed to provide a direct incentive for small businesses to keep their workers on the payroll, loan advances up to USD 10,000 of economic relief for companies that are experiencing temporary difficulties, bridge loans for existing SBA clients, and debt relief. To support the SBA initiatives, the Federal Reserve will establish a facility to provide term financing backed by SBA-supported loans.

1.See https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200407~2472a8ccda.en.html, for more details.

2.See also https://www.consilium.europa.eu/media/43300/200410_peg-centeno-letter-to-pec-michel_covid.pdf, https://www.esm.europa.eu/press-releases/klaus-regling-european-response-corona-crisis, https://www.eib.org/en/press/news/eib-group-welcomes-eurogroup-agreement-for-joint-eu-response-covid-19.htm and https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-financial-assistance/loan-programmes/sure_en for more details.  

3. Financial markets

Financial market sentiment improved somewhat this week. Improvement in equity markets was primarily driven by mainly positive news regarding the virus transmission rates in the most affected economies. Similarly, a (temporary) decline in volatility indexes was observed as sovereign risk premiums mainly contracted in the EU and EM and currencies of emerging economies strengthened (Figure 8). That said, stock market volatility remained above end-February levels when the financial market turbulence took off. Further, the OPEC and G20 meeting of energy ministers provided some cautious optimism regarding the oil price developments.


 European financial and corporate sector indicators remained mostly stable this week. The funding cost of EU corporates has stabilised; however, as the crisis lengthens, liquidity needs increase. Despite substantial policy support, issuance of debt securities remains subdued and credit lines, which were put in place to protect smaller corporates, are mostly effective in the very short term. They, however, may fall short of the funding needs as the crisis continues. Also, financial institutions’ credit risk remains at higher levels, though it stabilised somewhat last week. The Itraxx indexes for senior and subordinated debt (a measure of credit risk represented by an average of credit default swap (CDS) spreads of the main European banks’ debt) remained relatively unchanged last week and stood respectively at 81bps and 210 bps, which is below the recent peaks reached in 18th March (Figure 9). Looking forward, recent rating cuts in the banking and corporate sector –especially oil, automotive and automotive suppliers - point that further downgrades can be expected in both sectors.


The COVID-19 crisis is reducing the creditworthiness of sovereigns across the world. As a result, the three main credit rating agencies downgraded numerous countries (including  South Africa, Nigeria and Argentina) and their activity is well above the 2019 average (Figure 9). So far, no EU country has been downgraded, although Belgium, Croatia, Cyprus and Malta had their outlook lowered in March and the UK was downgraded by Fitch). With the crisis persisting, the impact on public finances and the economic performance continues to grow, and more downgrades, including for the European Union, cannot be excluded in the coming weeks.


4. Conclusions

The EU economy will most likely shrink two-to-three times more than during the 2008 global financial crisis, according to the vast majority of currently available forecasts. It is therefore paramount that the policy response be big enough to counteract the massive economic shock caused by COVID-19.

In an interconnected EU economy, policy measures at the EU level will support economic activity in all Member States in a mutually reinforcing way.

COVID-19 is an unprecedented shock also in the way in which it is affecting our behaviours. Even when the worse of the crisis is over, demand for some services and non-durable consumption goods will only very gradually recover. Long-term impacts, calling for long-term responses, structural changes and investments, seem unavoidable. While fighting the fire, policies for the medium to long term need to be carefully and pre-emptively designed.