Covid-19 – What is happening in Europe?

Global stock markets, including those in Europe, have been volatile in recent weeks with the outbreak of Covid-19 and the Russian-Saudi Arabia oil price war. However, in recent days, European equities have been positive, as optimism grows across the continent that Covid-19 is decelerating.

OECD suggests that contentious ‘Eurobonds’ could be in the best interest of all Eurozone’s countries

The secretary-general of the OECD, Ángel Gurría has stated that EU nations jointly issuing of debt in the form of eurobonds, would be a “powerful and efficient” response to Covid-19. Gurria also explained that “sharing financial risks is the next necessary step in European integration”.

• Germany has been reluctant to partake in the issuing of these bonds, as it is likely to receive a considerable burden from the programme. However, Gurria notes that Eurobonds would be in the interest of all eurozone countries, including the wealthier countries such as Germany and the Netherlands. 

• Countries to have supported the bonds thus far include France, Italy, Spain and six other countries. 

European industrial output positive in February, but set to fall in March 

German industrial production (including construction) expanded by 0.3% m/m in February. Combined with the upwardly revised figure of 3.2% m/m in January, German industry had a solid start to the year according to Oxford Economics. However, this data is reflective of pre Covid-19 containment measures.

• Oxford Economics note that the containment measures implemented across Europe will have a significant effect on industrial production in March, with sharp falls expected. The temporary closes of car factories, supply chain disruptions and a global recession will cause this major disruption, according to Oxford Economics. 

• Currently, Oxford Economics are forecasting industrial production in Europe to contract by 7% q/q in Q2 2020. However, they anticipate that the sector will recover in the second half of the year, dependent on the success of the containment measures and how soon economic activity returns to normal. 

German production sentiment moderates

The Ifo index of production expectations fell from 2.0 in February to -20.8 in March, the steepest fall recorded since the survey started in 1991. The Ifo expect that this is still understated, as most survey responses were received in the middle of March. 

• Sentiment surrounding future production fell across almost all sub-sectors, with the most severe declines in the automotive industry, amongst others. The beverage industry was the only sector to receive a positive outlook.

Swiss unemployment stable, as a third of the workforce applies for the short-time work scheme

According to Capital Economics, close to one third of the Swiss workforce, or 1.5 million employees, have reportedly applied for the short-time work scheme, similar to Germany’s Kuzarbeit scheme. During the global fiscal crisis, the number of people on the scheme peaked at 92,000 employees.

• In Switzerland, employees can be asked to reduce their working hours if a business temporarily has too little / no work. Switzerland’s short-time work scheme compensates up to 80% of the loss of earnings attributable to these reduction in working hours.

• However, the headline national unemployment rate remains low at 2.8% in March. While this is positive, the figures do not reflect those on the short-time work scheme. Furthermore, the unemployment rate increased by 0.5% in Q1, which is the joint highest quarterly increase on record, comparable to Q2 2009.