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Wholesale Banking

Monthly Economic Update: winter is coming

As the days grow colder and darker in the northern hemisphere, so too, does the economic outlook. ING's Global Head of Macro Economics, Carsten Brzeski, looks at what's at stake.

The economic season has changed as quickly as the weather. With lightning speed, an almost endless summer has morphed into a grey and wet autumn. In turn, the global economy has switched from relief-and-surge mode, after the lifting of the lockdown measures, to slowing activity, with renewed fears of a double-dip recession amid rising infections and new restrictions. The surge in the third quarter was the easy part, to get to a sustainable recovery will be much harder.

We haven’t changed our base case scenario, still assuming local lockdowns during the winter months and the rolling out of a vaccine in the course of the first half of 2021. However, we have to admit that the risk of moving to our first risk scenario, i.e. somewhat tighter lockdowns and a much lengthier process for the rollout of a vaccine, has increased in recent weeks. In fact, some countries are already moving in that direction.

The coming months should finally reveal more about the structural face of this crisis. In particular, people-oriented services in the northern hemisphere could be hit by the change in season as the capacity to host and entertain people will be much more restrained indoors than outdoors. With an increasing lack of demand, questions will be asked about how long government support schemes can actually keep businesses and the economy afloat.

As a result of the above, expect new calls for additional stimulus, both from fiscal and monetary policy. In this regard, the forthcoming presidential election in the US will be a key event, not only for the US economy but for global growth as well. It could pave the way for a new round of fiscal stimulus and determine the type of stimulus that global policymakers pursue; either purely short-term orientated or with a view to guiding and managing structural changes in the economy. In case of the latter, we could see a new push for greening all economies.

Fiscal policy should continue to be the number one game in town, even if financial market participants still listen carefully to central bankers. However, with interest rates at the lower bound and ballooning balance sheets, central banks can (and probably will) do more of the same. This will demonstrate determination and ability to act but will hardly be a game-changer. The best central banks can currently do is to back up additional fiscal stimulus.

If you want to know about all of this, watch the video above or read the 'Monthly Economic Update - Winter is coming' report. 

Read the report