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Policy response will only cushion the blow

The market slump will galvanise policymakers into action. The situation is evolving quickly but we now think there will be a fiscal stimulus of at least 1% of GDP in the euro-zone this year, and several measures from the ECB next Thursday, including more targeted TLTROs and/or support for the banks, plus a 0.1% deposit rate cut. However, this will not prevent a sharp economic downturn.

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