Berenberg cuts European growth forecasts on coronavirus headwinds

Berenberg has cut its economic growth forecasts across Europe, warning that the world faced “serious downside risks” from the coronavirus outbreak.

In a note published on Monday, the bank said: “For the next few months, our economic and financial forecasts will be shaped much more by the coronavirus epidemic that by economic fundamentals or shifts in monetary and fiscal policy.”

It argued that the lockdown in northern Italy, “with serious travel restrictions, exacerbates the near-term damage significantly”, and that confidence was likely to suffer across the continent.

Berenberg is now predicting Eurozone GDP will fall 0.4% quarter-on-quarter in the first three months of the year, compared to a previous forecast for flat growth. In the second quarter, it is expected to fall by 0.5%, against an earlier estimate for a 0.2% decline.

Full-year growth has been downgraded from 0.5% to a contraction of 0.1%.

In Italy, one of the world’s worst affected countries, GDP is expected to fall by 1% in the second quarter, compared to a previously predicted decline of 0.3%, and by 1.2% in the full year. Previously Berenberg had pencilled in Italian GDP to fall 0.3% in 2020.

In the UK, GDP growth for the year is now pencilled in at 0.9%, down from 1.3%.

The bank said: “We maintain our view that economic activity should start to rebound by the end of the second quarter, as the outlook for the epidemic becomes clearer. However, the risks are rising that the virus-related hit to growth may turn out to be more protracted.”

Berenberg also argued that there was little central banks could do to help.

“The world is facing a medical emergency that monetary and fiscal policy cannot fix. The situation will settle down once we have more clarity about the future course of the disease. Until then, we face serious downside risks. This is very different from the post-Lehman and the euro debt crisis, when monetary policy made the crucial difference.”

The European Central Bank meets on Thursday, and Berenberg noted it had “limited room to act” with key rates already at 0% or lower.