Euro area economic confidence steady in October, despite Q4 fraught with risk

Economic sentiment in the euro area was unchanged in October to the surprise of some economists.

Yet as Claus Vistesen at Pantheon Macroeconomic pointed out, the need to reimpose lockdowns against Covid-19, even if only for a month, meant that a "chasm" had just opened underneath the feet of projections for economic growth in the fourth quarter.

The European Commission's economic sentiment index for the euro area was unchanged at 90.9 (consensus: 86.9).

However, while a sub-index for industrial confidence in fact improved, from -11.4 to -9.6 (consensus: -11.2), that for services worsened from -11.2 to -11.8.

Similarly, the ESIs for German and Italy, where the pandemic was more under control, in fact improved a tad, while the French and Spanish ESIs worsened.

For the euro area as a whole, Vistesen estimated that a full one-month lockdown of the hospitality sector could knock about two percentage points off the rate of growth of GDP - although he conceded that such forecasts might prove too pessimistic.

"Hopefully, this baseline is too pessimistic—not all countries will shut down their hospitality sectors as currently proposed in France and Germany—but it is these kinds of calculations that we must now make to come up with a number for Q4.

"Expect growth downgrades in a sell side report near you anytime now."