The lockdown has triggered the biggest economic slump since WW2 with activity likely to drop by around 20% in Q2. As the peak of the epidemic passes, restrictions will be lifted gradually, and household consumption will pick up again. But spending will remain much lower than before the coronavirus because some restrictions will remain in place and private sector balance sheets, including banks’, will be damaged. Also, the uneven impact of the slump will put huge strains on the currency union. The ECB has done enough to contain sovereign bond spreads for now, but it may need to do more particularly if the euro-zone fails to agree joint fiscal support.
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