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ECB: pandemic has produced more marked contraction than ever in employment. Strengthening of the credit granting criterion expected
“In the first half of 2020, the Covid-19 pandemic caused the most marked contraction ever recorded in employment and the total number of hours worked, while the effects on the unemployment rate were more limited due to the support schemes for occupation”. This is what we read in the economic bulletin released today by the ECB in which it underlines how compared to the contraction of GDP in real terms in the first half of 2020, the increase in the official unemployment rate has been relatively limited: from an all-time low of 7.2 per percent reached in March 2020 reached 8.1 percent in August, although it is still far from the peak of 12.7 percent recorded in February 2013. “Employment support measures, such as working hours and temporary layoffs, as well as a decrease in participation rates – reads the bulletin – help explain the limited impact on the unemployment rate. These measures also contained the decline in employment, which fell by 2.9 per cent in the second quarter of 2020 compared to the first quarter. The total number of hours worked fell significantly more significantly, by 13.4 percent in the second quarter, leading to a 10.8 percent decline in the average hours worked per person employed ”.
The euro area bank lending survey of October 2020 shows a significant tightening of the criteria for granting credit to businesses and households in the third quarter of 2020, mainly due to a higher perception of risk. This is what is read in the ECB economic bulletin which underlines how for the fourth quarter banks expect a further net tightening of the criteria for granting credit to households and a drop in the demand for loans for house purchase. “Furthermore, on the basis of the indications of the credit institutions – reads the bulletin – the asset purchase programs conducted by the ECB (Qe and Pepp) and the third series of targeted longer-term refinancing operations (Ltro-III) had a positive impact on the liquidity position of banks and on market financing conditions. The intermediaries also reported that, together with the negative value of the interest rate on deposits with the central bank, these measures have contributed to loosening the criteria for granting bank credit with consequent positive effects on loan volumes ”. At the same time – the bulletin continues – the indications of the banks suggest that the purchases of assets by the ECB and the negative rate on deposits with the central bank have had an unfavorable impact on their interest margin, while a large percentage of banks pointed out that the two-tier system for the remuneration of reserves introduced by the ECB had positive effects on their profitability.
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