Daily Management Review

Gloomiest Picture For Euro Zone Economy On Record: Reuters Poll


The economy of the euro zone, which is already in one of the deepest recessions on record, is set to face even a worse downturn as the economic impacts of the coronavirus lockdown in the countries of the region starts taking its toll on the economic bloc, according to a poll of economists conducted by the news agency Reuters. The poll predicted a bleak outlook for the euro zone economy.
The gloomy picture was painted by economists even as a support package of purchases of assets worth more than 1 trillion euros in the current year was announced by the European Central Bank. Additionally, many of the euro zone governments have also announced economic support packages worth hundreds of billions through spending and supporting businesses and workers  as businesses have closed down due to lockdown orders and jobs of workers have consequently been put at risk.
The economists participating in the poll, which was carried out between April 14 and 22, estimates a 3.1 per cent contraction in the euro zone economy during the first quarter and a 9.6 per cent contraction in the current quarter. In comparison, in a poll published on April 3, contractions of 3.1 per cent and 9.6 per cent were predicted in the first quarter and the current quarter respectively.
Over the past few weeks, there have not been huge changes in the forecasts for the quarter-on-quarter contractions unlike in the case of the United States. But if the forecasts come true, the current quarter would mark the sharpest decline on record.
In such a scenario, it is expected that the euro zone economy will grow at 5.2 per cent in the third quarter and at 2.9 per cent in the final quarter of the current year compared to forecasts of growth rates of 6.0 per cent and 2.0 per cent according to a poll that was published a few weeks ago.
However the risks of the forecast made by the economists for the second half of the current year were more included to change for the worst, said economists.
“The deeper the recession goes and the longer it lasts, it increases the risk that we have more damage to the supply potential of the economy since the likelihood of workers becoming unemployed and companies going bust is high,” said Spyros Andreopoulos, senior European economist at BNP Paribas. “The policy response has so far been less decisive. That’s why we don’t expect to go back to the previous baseline forecasts for growth soon.”
Economists expect a 5.4 per cent contraction in the eruo zone GDP for 2020 as a whole which will make the current year the worst performing year for the economy since 1999 when the bloc was established. However that forecast was still better than the 7.5 per cent contraction forecast for the euro zone by the International Monetary Fund in its latest forecast.
“It is difficult to think that things will return to normal right after the lockdown. There will be some changes on the supply and demand side because behaviors are going to be changed for quite a while,” said Philippe Gudin, chief European economist at Barclays.
“Will people return to their old habits, will they travel again quickly? There is huge uncertainty but for sure the risk to our scenario is to the downside.”