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Superforecaster Fridays: Between 1 July 2019 and 31 December 2020, how many quarters of negative GDP growth will the Euro area experience?

EURASIA GROUP
6 March 2020

The Superforecasters currently predict that there is a 51% chance that the Eurozone will not experience negative growth between 1 July 2019 and 31 December 2020, down from its peak of 78% in early February. Meanwhile, the probabilities that Euro countries will have one or two negative growth quarter(s) rose significantly in the past month to 37% and 10%, respectively.
The global spread of coronavirus has created economic and political repercussions for European countries. In a benign scenario where virus containment measures manage to limit global transmission with a significant decline in new cases, the risk of recession will be low, and the temporary slump in growth could well be countered by a moderate loosening of financial conditions as well as fiscal and monetary stimulus. Italy and Germany are the two fast responders to the virus-induced shocks. The Italian government has already rolled out two fiscal aid packages and Germany's coalition government is poised to approve spending support to virus-hit SMEs. In contrast, the UK only suspended the planned tax hike without offering substantial fiscal relief.
Although the European Central Bank (ECB) has signaled a further cut of its deposit rate following the Fed cut, the scope of ECB monetary stimulus will be small given the already negative interest rate. The limited monetary ammunition suggests that the heavy lifting will lie in more aggressive fiscal stimulus.
If the rising trend of new confirmed cases and fatalities extend to July or even the end of 2020, there will be mounting pressure on the administrations to roll out additional stimulus measures. Despite a modest fiscal space in the broader EU level, there is a divergence in governments' capacity to ratchet up stimulus. While Germany's rising budget surplus creates ample room for substantial fiscal easing, Italy is constrained by its 2.2% deficit target and a fragile coalition government to respond to a possibly prolonged outbreak. It is more likely that governments of Euro countries will likely continue to abide by the EU limits and discretionary spending.

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Each Friday, Eurasia Group clients have the opportunity to submit potential forecast questions to the Superforecaster network. Selected questions are reported back to clients each week, with periodic updates provided on previous forecast questions. Good Judgment® helps clients quantify subjective risks for better decisions. Their cutting-edge methods and network of professional Superforecasters deliver accurate and early foresight. Learn more about this forecast and Superforecasting™ techniques here.

Superforecaster Fridays: Between 1 July 2019 and 31 December 2020, how many quarters of negative GDP growth will the Euro area experience?

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