Eurozone: All signs point to a recession – Natixis

The first fall in production in the Eurozone was due to a very specific cause in the form of the lockdowns. But the second fall in production, in 2021, will be a recession of the usual kind, brought about by a fall in employment, corporate bankruptcies and a drive among companies to deleverage and restore their profitability, per Natixis.

Key quotes

“Job losses will happen with a lag, as is usual in the Eurozone, relative to the loss of activity. In our scenario, unemployment rises until the end of the first half of 2021.”

“Several economic sectors will face long-term problems and will lay off staff in late 2020 and 2021: the automotive sector, air transport, aerospace, tourism, traditional retail.”

“Companies have become highly indebted during the crisis , which will drive up bankruptcies in late 2020 and 2021.”

“Companies will try to shore up the structure of their balance sheets after running up a lot of debt, so they will reduce their investment, like in the wake of the subprime crisis.”

“Given the sharp fall in the profitability of euro-zone companies in 2020, they will try to restore their profitability, leading to a wage freeze and to offshoring to low-labour-cost countries (for example Eastern Europe, Morocco, etc.) despite the talk of reshoring. Given rising unemployment, job losses in troubled sectors, rising bankruptcies and contracting investment, a wage freeze and offshoring to low-wage countries, it is unlikely that 2021 will be a good year for the euro zone.”