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Analysts at banks such as JPMorgan Chase & Co. and UBS Group AG are reducing forecasts for renewed quarantines, somewhat stricter than ever, and the prospect of a new strain of coronavirus rampant in the UK covering the entire continent.
And given the vaccine delays due to trade disruptions caused by Brexit, gross domestic product (GDP) is likely to decline for the second consecutive quarter. This would reverse the situation in early 2020, albeit not so seriously, and increase pressure on indebted governments and the European Central Bank (ECB) to provide additional financial support at next week’s policymaking meeting.
Frequently updated data shows that while economic activity in the euro area recovered in the first week of this year on the return to work, it is much lower than a year ago.
Quarantines and slow vaccines don’t help, said Katharina Utermoehl, senior economist at Allianz SE. “Long-standing restrictions, which were initially quite mild, are becoming a growing problem,” says the senior economist.
According to current forecasts by Bloomberg Economics, the eurozone economy will contract by around 4% in the first three months of 2021. – These forecasts are based on “pessimistic” assumptions about the possible duration of the restrictions. Previously, it was forecast at 1.3 percent. increase.
JPMorgan, which claims that in the fourth In the third quarter, the economy suffered a huge 9 percent now forecast 1% in the first quarter of this year. decrease compared to 2% previously. growth forecast.
According to UBS forecasts, the economy will contract 0.4 percent in the first quarter of this year, compared with 2.4 percent previously forecast. increase.
Goldman Sachs Group Inc. predicts a slight contraction, “with a gradual decrease in high uncertainty and risks.”
Brexit also has an impact on development. According to ING Groep NV, in addition to the viral upheaval, export volumes could fall again after a strong recovery at the end of the year, when eurozone companies rushed to ship goods to the UK for a possible no-contract Brexit.
The Bank of the Netherlands forecasts “growth at best” zero growth over the next three months and says the economy will not return to pre-pandemic levels until at least 2023.
“2021 is not the beginning,” chief economist Peter Vanden Houte said in a statement. “The vaccination campaign launched is slow and sometimes chaotic.”
There are significant differences between the Member States. Germany is more dependent on production, factories continue to operate, although mandatory government quarantine applies to shops selling non-essential products and most of the hospitality sector. According to Bloomberg Economics, the country is likely to have experienced similar growth in the fourth quarter.
All governments are under increasing pressure to provide tax support to businesses and workers. The cost of credit keeps loan prices close to zero through the ECB’s large-scale monetary stimulus measures.
The central bank has now extended its bond purchase program until 2022. March. That means you may not have to make major adjustments to your policy this year. According to Citibank, the program will still have to resume one way or another.
Surprise in summer?
Most economists predict that the recovery will finally begin in the second quarter of the year, after more than a year of trouble. The jump will be abrupt, at least in the beginning, as soon as restrictions are eased and the scale of infections decreases as more and more people are vaccinated.
Suppressed demand could lead consumers to unleash hundreds of billions of euros in savings, which could drive faster inflation.
The unprecedented 1.8 trillion of the European Union. The € 2.2 trillion recovery fund and multi-year budget are expected to support growth around the second half of this year, and public investment is crucial for companies to recover their crisis-ravaged finances.
“We expect governments to provide long-term support to support the recovery, shifting from income support to stimulating demand,” UBS economist Reinhard Cluse said in a statement. “Continued support for monetary policy through 2021 and possibly 2022 appears to be warranted.”
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