Euro Macro: Discretionary stimulus around 2.2% GDP, but automatic stabilisers and liquidity support will also help – There has been a flurry of announcements by governments of measures to support the eurozone economy in the face of the major coronavirus shock (as illustrated by the collapse in the March PMIs – see below). Below we set out the numbers for the biggest eurozone member states as well as the eurozone as a whole. We break down the measures into discretionary fiscal measures, deterioration in the public finances due to the cycle (often known as the automatic stabilisers) and liquidity support measures. We define the latter as bank loan guarantees as well as lending schemes. Taking all the measures together, for the eurozone as a whole the fiscal and liquidity measures total around EUR 2 trillion (around 18% GDP). Most of this comes from liquidity measures, though the fiscal support is also substantial. Discretionary fiscal stimulus at the eurozone level is around 2.2% GDP, with Germany (3.6%) and the Netherlands (4.3%) leading the way. The automatic stabilisers are also greater than in the US because of a bigger welfare state. Given the size of the economic shock, governments and the ECB will likely need to do more going forward, but over the last few days, eurozone policymakers have started to design a much more serious response. (Nick Kounis & Aline Schuiling)

​Euro Macro: Unprecedented deterioration in services sector activity and employment PMIs – The flash estimate of the eurozone March PMI gives a first impression of the blow that the outbreak of the coronavirus has given to the eurozone economy. In contrast to earlier periods of a sharp economic downturns, the largest drop in activity was not in the industrial sector, but in services. Indeed, the various lockdowns and restrictions on social gatherings, tourism, shopping and recreation has resulted in an unprecedented drop in the services sector PMI, which plummeted to 28.4, down from 52.6 in February. Meanwhile, the manufacturing PMI declined as well, but less dramatically, to 44.8, down from 49.2 in February. As a combined result of the changes in the services and the manufacturing PMIs, the composite PMI, which tends to be a fairly good indicator for GDP growth, dropped to 31.4, down from 51.6. Another noteworthy element of the PMI report, is the very rapid deterioration in labour market conditions, with the employment component of the composite PMI dropping to 43.2 in March, down from 51.4 in February, signalling a deep contraction in the number of jobs. The monthly drop in the employment PMI is the sharpest since the start of the series, and around four times higher than the average monthly drop during the GFC.

Following its collapse in March, the composite PMI has reached its lowest level since the start of the series in July 1998 and, therefore, also lower than the deepest point during the GFC (of 36.2. in February 2009). At its current level, the composite PMI would roughly be consistent with GDP contracting by around 2-3% qoq. Having said that, the lockdowns and other restrictions to domestic spending and the services sector are currently still being stepped up in various countries, and are expected to continue at least until Mid-April. Consequently, the contraction in GDP is expected to be even larger in Q2 than in Q1. We have pencilled in around -2% qoq in Q1 and around -3% in Q2, but the risks to these forecasts are clearly tilted to the downside. (Aline Schuiling)