MNI POLICY: Covid 2nd Wave Needs Fiscal Response-ECB's Schabel

Lockdown measures to combat the second wave of Covid-19 infections will worsen the outlook for the euro area economy and necessitate additional fiscal support, the European Central Bank's Isabel Schnabel said in a speech Wednesday.

Measures introduced since October will mean "significant personal and economic cost [...] slow the path of recovery, increase the risks of long-lasting labour market scarring and ultimately require new fiscal measures to sustain demand and provide relief to those who are least able to bear the burden of the crisis," Schnabel said.

Risks to the economic outlook for the fourth quarter of 2020 have "visibly skewed to the downside," said Schnabel, a member of the ECB's Executive Board. Incoming data points to an "inversion in the trajectory of the euro area economy," she added.

The ECB announced last month that it will use the time before its meeting to analyse and recalibrate its monetary policy instruments in light of December's staff macroeconomic projections.

These, Schnabel said, will offer a "first tentative assessment of how persistent the economic effects of the new containment measures are likely to be, also taking into account the potential approval and distribution of a vaccine and the ensuing fiscal response."

The second round of lockdowns should have a more much more localised impact on financial markets than those in the spring, Schnabel said, though equity markets have seen corrections in recent weeks.

Nevertheless, Schnabel said "in the current environment of exceptional uncertainty, it would be naive to take the stability of euro area bond markets for granted.

"Investors have rather internalised that monetary policy will remain a stable and reliable source of support throughout the crisis."