ECB-Public

The ECB’smonetary policy in
the COVID-19 crisis
DIJ DWIH Web Forum

9 November 2020

Katrin Assenmacher
Monetary Policy Strategy Divisionwww.ecb.europa.eu ©

The views expressed here are those of the presenterand do not necessarily reflect those of the ECB.

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The ECB’s response to the pandemic
COVID-19 pandemic presents huge challenges to public healthand growth prospects of the euro area and global economies.

Unprecedented collapse in economic activity (-11.8% drop in Q2 euro area GDP)
Turbulences in financial markets during spring.
Fiscal response leads to large increases in government debt.

Forceful monetary policy response in order to:

Support liquidity conditions and ensure smooth transmission of monetary policy.
Help sustain the flow of credit to households and firms, especially SMEs.
Maintain favourable financing conditions for all sectors and jurisdictions.

Unlike for the global financial crisis the shock did not originate in thefinancial sector.
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Overview1
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The outlook for the euro area
The ECB’s policy response to the COVID-19 pandemic

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The outlook for theeuro area

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Real GDP

Real value added(year-on-year percentage changes; ppt contributions)(year-on-year percentage changes; ppt contributions)

Source: Eurostat

Source: Eurostat

Latest observations: 2020Q3 for GDP (flash) and 2020Q2 for components.

Latest observations: 2020Q2.

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Real GDP levels in the euro area

Source: Eurostat, 2008Q1=100.
Latest observations: 2020Q3.

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Unemployment, discouraged workers andworkers in job retention schemes

Number of workers in job retention schemes(lhs: persons, million; rhs: in percent of the labour force)(percent)

Sources: Eurostat; IAB; ifo Institut; Ministère du Travail, de L’Emploi et de L’Insertion;
INPS; Ministerio de Inclusión, Seguridad Social y Migraciones.
Latest observations: Sep 2020 for the number of workers in ERTE in Spain; Sep 2020 for
the number of workers in Kurzarbeit in Germany and Activité Partielle in France; Jun 2020
for the number of workers in Cassa Integrazione in Italy.

Sources: Eurostat and ECB staff calculations.
Latest observations: Unemployment rate, 8.1% in 2020Q3 (average of Jul and Aug 2020data); unemployment + discouraged, 12.6% in 2020Q3 (ECB estimate), andunemployment + discouraged + job retention schemes, 20.3% in 2020Q3 (ECB estimate).

8Cyclically-adjusted primary balance

Severity of crisis and government debt(% of GDP)

Draft budgetary plan(% of GDP)EC Autumn forecast 2020

0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
-3.5

2019

2020

2021

2022

Sources: European Commission’s Autumn forecast and ECB calculation.
Notes: The GDP losses in 2020 and in 2020-21, in equal proportions, are one of the criteria forthe allocation of the grants under the Recovery and Resilience Facility of the Next Generation EU
instrument. They are calculated as an average of the projected GDP loss in 2020 compared to2019 and the projected GDP loss in 2021 compared to 2019.

Sources: European Commission Autumn forecast, 2020; Draft Budgetary Plans for 2021.

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Staff macroeconomic projections for the euro area
September 2020 projections
Mild
SevereJune 2020 projections
MildSeverea) Alternative real GDP scenarios
1102.51052.01001.5951.0900.585

0.080

201920202021-0.5202210b) Alternative HICP scenarios

2019

2020

2021

2022

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Longer-term euro area inflation
expectations from surveys

SPF inflation expectations and risk
premium-adjusted 1y-in-4y ILS rate(annual percentage changes)

2.1(percentages per annum)

SPF (4 to 5 years ahead)
Consensus Economics (5 years ahead)Eurozone Barometer (4 years ahead)
Weighted average of surveys

5 year ahead SPF point forecast
5y ahead SPF mean
1y4y ILS
Premia adjusted 1y4y ILS

3.02.02.5

1.9

2.0

1.8

1.5

1.7
1.0

1.6

0.5

1.5
1.4
2015

2016

2017

2018

2019

0.0
2008

2020
2020Q4

Sources: ECB SPF, Consensus Economics and Eurozone Barometer.
Note: The average of the SPF, CE and EZB longer term inflation expectations is weighted
by their respective average number of respondents.
Latest observations: 2020Q4.

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2010

2012

2014

2016

2018

2020Q3

Sources: Bloomberg, Refinitiv and ECB calculations.
Notes: The risk adjusted 1 y-in-4y ILS rate is based on the decomposition of an affine term
structure model fitted to the euro area zero coupon ILS curve. Survey expectations fromthe ECB’s Survey of Professional Forecasters (SPF) refer to the mean of the reported
probability distributions for year-on-year expectations five years ahead.
Latest observations: 2020 Q3 (SPF), September 2020 (ILS).

The ECB‘s policy
response to theCOVID-19 pandemic

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ECB measures since the start of the pandemic

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10-year sovereign yield spreads
vs. 10-year OIS rate

MFI loans to non-financial corporations(lhs: annual percentage changes; rhs: EUR bn)(percentages per annum)

PT

3.5

123.0

10

2.5

82.0

6

1.5

4

1.0

20.5

0

0.0

-2
2007-0.5

2010

2013

2016

2019

Jan-20Aug-20Sources: Bloomberg, Refinitiv, ECB calculations.
Notes: The spread is the difference between individual countries’ 10-year sovereign yields
and the 10-year EONIA OIS rate. The vertical lines refer to the days before the PEPP
announcement (18 Mar), the June GovC meeting (2 Jun), and the September GovC
meeting (8 Sep), respectively.
Latest observation: 23 October 2020.

14121086420-2-4
2016 2017 2018 2019 2020
Source: ECB.
Latest observation: September 2020.

14Sep-20

14Aug-20

4.0

DEFR
Other countries

Jul-2016EAES
ITJun-20

ESMay-20

IT

Apr-20

FRAvg. 2019DEConclusions
Economic prospects are highly uncertain due to the ongoing
COVID-19 pandemic.
Impact on economic activity has been huge with an uneven and incomplete
recovery across sectors and countries.

Policy response has cushioned immediate impact.

Monetary and fiscal policy have been working hand in hand.
Fiscal policy has supported spending of households and firms.
Monetary policy has maintained favourable financing conditions for all sectors
and jurisdictions.

Long-term consequences and extent of permanent damage still unclear.
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Thank you16

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