Euro-zone economic activity looks set to slow sharply again in November and to remain weak for a while beyond that. The number of patients in intensive care units is rising rapidly and we suspect that the new restrictions will bring the number of COVID-19 cases down only gradually. After all, both the measures and compliance with them are likely to be less strict than last time. Lockdown 2 is more narrowly targeted on the hospitality sector than the earlier version, but it is already causing the economy to slow. We think GDP will contract by around 3% q/q in Q4 and be flat in Q1 2021. This will keep downward pressure on inflation and prompt the ECB to unveil a package of new measures in December.
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