Christine Lagarde.
Christine Lagarde, the President of the European Central Bank, gave an unscheduled speech today, outlining ECB's plans to tackle the remaining uncertainty that continues to weigh heavily on the economy of the Eurozone.
Her remarks were part of a videoconference at the inaugural session of the Italian National Consultation. Lagarde laid out the most pressing problems for the Eurozone, chiefly the record-breaking savings rates and muffled business investment.
Then, the President of the ECB went on to summarise the two main sources of uncertainty at present.
According to Lagarde, the first cause of anxiety in the Eurozone is pertaining to the uncertainty about how the economy will recover from the coronavirus. The second has to do with how the economy would be changed after the crisis is over.
"It is becoming increasingly clear that the crisis will restructure our economies in fundamental ways. In the manufacturing sector, we are likely to see a push to make supply chains more resilient, which will likely lead to a greater focus on “proximity”, i.e. on-shoring of production and reinforcing of strategic value chains. In the services sectors, by contrast, the pandemic is likely to shift the economy towards more “distancing” via more digitalisation."
The timing of those comments is particularly intriguing since Germany and France – the largest and second-largest economies in the Eurozone respectively – are scheduled to release vital services and manufacturing PMI data on Friday.
It would take a lot of time before the economies of the Eurozone can be reconstructed in such a way; however, Lagarde's insights could spell profound changes for the bloc.
As regards manufacturing, a reorganisation with emphasis on 'proximity' would mean that Europe would be much less dependent on imports from China and elsewhere. Consequently, its supply chains would not be as vulnerable to future pandemics as they were shown to be in the wake of the coronavirus crisis.
As regards services, a 'digitalisation' of the sector would very probably make the industry as a whole more resilient to similar shockwaves in the future, but also make it more self-reliant.
This would also have a positive spillover effect on the stock value of companies such as Microsoft, whose cloud service is proving vital during lockdowns.
Overall, Lagarde's remarks from today encapsulate a broad vision for a long and extensive reshaping of Eurozone's economy. This process would not happen overnight but is undoubtedly going to have long-lasting and profound consequences.
In the short run, however, it could potentially boost investors' sentiment, and support the ongoing stock market rally, which is represented by the French CAC 40 and the German DAX indices on the hourly chart below.
Indices Comparison Chart. Image source: Trendsharks ©, created with TradingView.com
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