London (CNN Business)The European Central Bank has signaled that it could provide even more stimulus this year, warning on Thursday of clear risks as the region’s two biggest economies once again impose sweeping restrictions in an effort to curb the resurgent coronavirus.
The ECB said in a statement that it will respond “as appropriate” to the unfolding situation when it meets again in December, ensuring that “financing conditions remain favourable to support the economic recovery and counteract the negative impact of the pandemic” on inflation.
The central bank is widely expected to add billions more to its $1.35 trillion asset purchase program, which sits alongside the European Union’s €800 billion ($938 billion) coronavirus recovery fund and has enabled even heavily indebted countries such as Italy to borrow money at zero interest.
The ECB “has clearly indicated its intention to provide more support in December,” according to chief Europe economist at Capital Economics, Andrew Kenningham. “The new restrictions announced in France and Germany, and likely to be replicated elsewhere, will probably tip the eurozone economy into another recession,” he wrote in a research note on Thursday.
France and Germany on Wednesday announced wide-ranging restrictions to stem a second wave of coronavirus infections.
France will begin a four-week nationwide lockdown starting next Monday. Non-essential businesses, restaurants and bars will be closed and people will only be allowed to leave their homes to go to work, care for relatives, keep a medical appointment, visit the grocery store or for exercise. France’s lockdown will last until December 1 “at minimum,” President Emmanuel Macron said.
In Germany, bars restaurants and cafés will shut starting on Monday except for takeout services. Theaters and concert halls will stop operating, as will amateur and recreational sports facilities. Schools will remain open in both countries.
Business activity in Europe’s manufacturing and services sectors was already in decline before stricter measures were announced, according to IHS Markit’s latest Purchasing Managers’ Index, raising expectations that key European economies will contract in the final quarter of 2020.
Economists at Allianz warned earlier this month of an “elevated risk of a double dip recession in countries that are once again resorting to targeted and regional lockdowns.”
This is a developing story and will be updated.
— Fred Pleitgen, Tara John and Claudia Otto contributed reporting.
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