Eurozone rebounds from recession but clouds gather

People strolling in downtown Munich, Germany, on Tuesday. The Ifo Institute upgraded its forecast for the German economy, expecting gross domestic product in the eurozone's biggest economy to shrink 5.2% this year, a big improvement on its last projection for a 6.7% drop or the Bundesbank's 7.1% forecast.

Adding to the positive news, the Ifo Institute upgraded its forecast for Germany, expecting gross domestic product in the eurozone's biggest economy to shrink 5.2% this year, a big improvement on its last projection for a 6.7% drop or the Bundesbank's 7.1% forecast. Germany's HDE retail association now expects nominal sales to grow by 1.5% this year, a sharp upward revision from its previous estimate for a 4% drop, helped by a surge in online sales and stimulus measures that have included a temporary value-added tax cut and cash handouts for parents.Investors are growing increasingly worried about surging coronavirus infections in countries like France and Spain, increasing the risk of lockdowns, a factor not captured by Tuesday's indicators.

Indeed, many eurozone countries have reintroduced travel restrictions, forcing airlines to scale back passenger services after a relatively quick run up over the summer. Still, the outlook is sufficiently murky for the ECB to make the clearest case yet for even more stimulus, perhaps as soon as the fourth quarter.

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