European Central Bank is looking at a darkening picture for the economy as infections and deaths surge. Spiking virus totals have led Germany, the eurozone’s biggest economy to extend restrictions on many businesses involving contact with the public until Feb. 14, while Portugal hit a record for new COVID-19 infections and France imposed a 6 p.m. curfew. Vaccination rollouts have been slower than many would like. That is darkening the already gloomy outlook for the first few weeks of 2021, after Europe ended 2020 with fanfare over the start of vaccinations. The winter surge suggests that the first quarter could see economic output fall again after an expected contraction in the fourth quarter of 2020. Official figures for 2020 are expected Feb. 2. The EU’s executive commission has forecast a downturn of 7.8% for 2020 and growth of 4.2% for this year.
More than a trillion of that has not yet been spent. Through the purchases, the ECB keeps bond market and bank borrowing costs low. The goal is to make sure companies that may be struggling can get the financing they need to keep going. ECB’s polices have kept financial markets calm despite the pandemic. Germany’s DAX blue chip stock index hit a record high Jan. 7. Meanwhile, ECB stimulus has kept bond market borrowing costs low for governments, who are adding more debt as they spend on support for the economy and workers, including by paying the salaries of furloughed workers. Since the ECB purchases are driving down bond market borrowing costs, it is making it easier for governments to spend without being hit by high interest payments for now. The European Union is adding more support through a 750-billion-euro recovery fund to support investment in projects that reduce emissions of greenhouse gases and promote the spread of digital technology. That fund is supported by common borrowing among member countries, a step toward further integration and solidarity among union members.