Nonetheless, when all the relevant factors are considered -developments in the output gap and the decline in inflation expectations, the negative effects brought about by externalities, and the mutual effects of the supply and demand shocks -- the indications are that the economic shock of the spread of COVID-19 does indeed exert downward pressure on prices.4 For more details on the economic impact of COVID-19, see, for example, the following.
This reflects the ongoing weakness in international trade in an environment of prolonged global uncertainties, which are weighing, in particular, on the euro area manufacturing sector. In fact, some leading indicators such as manufacturing PMI and the ECB indicator on euro area new orders have declined recently, confirming weakening dynamics in the euro area manufacturing sector.