Wednesday 8 July 2020

Eurozone GDP likely to contract 7.8% in 2020: S&P

DUBAI, 12 days ago

Eurozone GDP is expected to contract a deeper 7.8% this year and rebound 5.5% next year, said S&P Global Ratings in a new report.

"The contraction in business activity has been more pronounced than we expected--even though the economy appears to be recovering as lockdowns are easing," said S&P Global Ratings' Senior Economist Marion Amiot in the RatingsDirect report titled "Eurozone Economy: The Balancing Act To Recovery”.

“The latest economic data is confirming our view of a severe contraction in the eurozone economy in April and May because of the lockdowns to slow the coronavirus pandemic. Economic activity is likely to have dropped 11.4% in the second quarter, after a 3.6% contraction in the first. Therefore, we now expect eurozone GDP to contract 7.8% this year and rebound 5.5% next year instead of our previous forecast for -7.3% and 5.6%,” Amiot added.

The services sector is taking the biggest hit because social-distancing measures are constraining consumers' ability to consume, according to the report.

That said, the manufacturing sector has been forced to adjust to a sharp drop in demand for consumer and capital goods as companies pull back investment. External demand has also collapsed, with the global economy facing a synchronized recession because of widespread containment measures.

The initial fiscal and monetary policy response to the coronavirus crisis has been successful at protecting workers' jobs and ensuring companies' access to liquidity in spite of the sudden stop in cash flow.

Fiscal policy during the recovery will be a tricky balancing act because removing extraordinary measures too early could stop it in its tracks: Households might hold onto their savings, depressing consumer demand for longer and exacerbating firms' reluctance to invest.

Economic divergence in Europe is set to grow, given that Germany has responded with a bigger fiscal stimulus than its neighbours. The EU recovery fund will likely help reduce divergence but in its current form will not be disbursed in time to finance the recovery. – TradeArabia News Service


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