“More so than monetary stimuli, there is now an urgent need for fiscal stimuli, because they reach families and businesses more quickly.”

Obviously, the pandemic is the main reason behind this most recent setback, indicated Alberto Matellán, Chief Economist at MAPFRE Inversión. “The declines in the markets have been concentrated in Europe because that’s where expectations are changing. In September there was a certain degree of optimism because the authorities were convinced that they could control the pandemic, but in recent weeks it has become clear that this was not the case,” he added.

The new measures to contain the virus have again made it difficult to produce macroeconomic forecasts. “Although we do not know the real impact, it will be greater than expected,” said Matellán. The economists at MAPFRE Economics have revised their forecast for economic growth in 2020 for the eurozone as a whole to -7.6 percent. However, their projection takes into account the broad risks of a downturn as a result of the unbalanced recovery across different sectors and countries, precisely because of the specialized nature of each market in the eurozone. “The figures are dependent on what happens, and we don’t know what is going to happen,” explained Matellán.

This situation will be reflected in companies’ income statements, perhaps as early as the fourth quarter. But as Matellán points out, 2020 has already brought about considerable drops in profit, meaning profit warning announcements will be less relevant for the market for the remainder of the year. For him, what is relevant is “what will happen in 2021 and 2022, because at first the pandemic was expected to be short-lived, but the opposite is now thought to be the case, which brings additional problems.” Although he expects there to be bigger problems over the medium- and long-term, Matellán also foresees opportunities: “the longer the issue goes on, the more we will see which businesses manage to adapt, and they will be the companies that survive in the long run.”

The European Central Bank (ECB) is set to meet again amid these clouds of uncertainty, and even the ECB is not immune to these pessimistic prospects. This also comes at a time when risk premiums in the eurozone’s peripheral countries are seeing a slight recovery, which, according to Matellán, is due to “the divergence in fiscal policies,” given that Germany and France have been more aggressive than Spain and Italy in this respect. That explains why the ECB was able to change its message somewhat, although the MAPFRE Inversión economist believes it will not be until December that the macroeconomic forecasts are revised and any potential additional measures are taken. However, the expert wished to clarify that, looking to 2021, “fiscal stimuli are more important than monetary stimuli, because the latter take longer to reach families and businesses.” After all, in his opinion, they are the ones who are most likely to bear the brunt of liquidity and solvency issues, both now and in the future.