The evolution of the euro zone economy after the historical collapse of 12.1% suffered in the second quarter is subject to a high degree of uncertainty, although the most recent data invite us to be “cautiously optimistic”, according to the Vice President of the European Central Bank (ECB), Luis de Guindos, during his speech at the courses from the Menéndez Pelayo International University (UIMP).
The central banker has indicated that the base scenario of the ECB’s macroeconomic forecasts contemplates growth slightly higher than 8% in the third quarter, although he stressed that with the data that are being received, taking into account that this third quarter has not yet ended, it is possible to “be cautiously optimistic regarding said evolution.”
In any case, Guindos has warned that, after an unprecedented drop in GDP, now the basic question is how the recovery will be, what its intensity will be and its distribution by countries and sectors, highlighting that the Elements that will determine future evolution will be the pandemic itself and the policy response.
In this sense, the Vice-President of the ECB has indicated that the actions of Spain It has been similar to that of other countries in terms of the composition of fiscal programs of a discretionary nature, with an estimated size slightly above four points of GDP.
“The execution has been faster than in other countries of the euro zone, although nominally other programs were more important, the execution of Spain has been faster than in other countries, only in France we have seen a faster execution”, he highlighted .
Regarding the impact of the crisis on the banking sector in the euro zone, Luis de Guindos highlighted that the entities had a much higher capitalization on average than they had in the past, while the sector continues to drag the profitability problem that already existed before the crisis and that the pandemic has worsened.
“We are going to have an additional reduction in bank profitability derived from the increase in provisions for non-performing loans and the fall in the sector’s income,” warned the ECB vice president, for whom it was already necessary before the crisis Acting on the costs of European banking is now especially important.
Thus, for the central banker, the fundamental factor that will determine the impact on the bank’s solvency and profitability will be “the intensity of the recovery.”
In this sense, the former Spanish Minister of Economy has encouraged banks to take advantage of the relaxation of the demands from the supervisor to use capital buffers to make loans, which will help drive economic recovery and this, in turn, will push up its capitalization levels with lower levels of delinquency.
On the contrary, it has warned that if the recovery were slower than expected and of less intensity, this would have negative effects on the sustainability of public accounts and the solvency of banks, as well as on the dispersion of the effects, putting more highlighting the divergences between sectors and between countries.