Economists were already expecting the Euro Area’s economic downturn to continue for the third consecutive year in 2020. Still, the bloc’s 3.8% slowdown during the first quarter was still a worrying figure. To make matters worse, during the early days of the coronavirus pandemic, the International Monetary Fund (IMF) said the eurozone’s GDP would crash by 7.5% by the end of this year.
That said, the EU’s GDP fell by 4.3% after the Global Financial Crisis in 2009.
In the United States, analysts expect its GDP growth to slow by 2.0% this year from 2.2% in 2019. During the GFC, the country saw a 2.5% decline in the same figure.
Now that the market is merely waiting for the inevitable announcement that the eurozone is experiencing its worst economic slump yet, it might be safe to say that the bloc will see a worse couple of years against the US.
But what if it doesn’t?
Why not?
There are stark similarities in the economic crises between 1930, 2008, and 2020. The Great Depression started with a stock market crash, similar to today. The Great Recession was triggered by a subprime mortgage crisis – which were both present in 1930 and 2020.
However, most economists fail to forget the biggest difference between the other two crises and this year’s: it’s a health emergency first. This year is called “the Great Lockdown” because people are forced to stay inside to avoid dying, which shows the vivid effects of what the world looks like if humans don’t take care of it.
As of now, the United States is suffering the most COVID-19 cases over most countries combined for a number of reasons:
Trusted sources, from the media to the US government, underestimated the coronavirus’s capacity to rattle the markets. Although most reports corrected themselves after witnessing the alarming death toll, its repercussions continue to bleed. President Trump also asked if he could just let the virus “wash over.”
American cities with the highest amount of people in protests against the lockdown are those that have the most coronavirus cases. As long as these protesters go outside in hurdles and insist on reopening its economy while its number of cases remain high, more businesses will be forced to stay closed.
Harvard’s Global Health Institute recommended a target testing of about 900,000 people a day. As of May 7, the US recorded a 264,249-daily average. The institute’s estimate increases day by day, but the actual amount of testing remains the same.
The US unemployment rate jumped to 14.7% by more than 20 million in April to the highest level since the Great Depression, down from 4.4% in March. The unemployment system hasn’t really changed much since then, consequently leading to frustration and delays in applying for corresponding benefits. Regardless of how much the Federal Reserve will help its businesses, it could eventually run out of bullets unless major businesses begin to reopen.
Moreover,
How is Europe Doing Better?
Now, one may ask that the jobs figure has little to do with other factors, such as the dollar’s safe haven status, the Eurozone’s already slowing economy,
Fortunately for the Eurozone, its economy is slowly reopening. Most European countries are starting with reopening schools to limited access to public spots to reallowing leisure gathering of more than 10 people.
Well, the European Union and the European Central Bank’s economic decisions against the coronavirus were undeniably one of the slowest. The organizations hadn’t seen the implications of the Great Lockdown early enough, and its GDP is truly on its way to its lowest low in a long time.
However, it’s still important to note that the euro currency is stimulated by countries, which are currently implementing the following measures:
Germany, the country’s biggest economy, opened small shops on April 20 and expects to reopen Bundesliga football matches by May 16.
After France first imposed strict lockdowns on March 17, it eased some restrictions on May 11.
The Netherlands wasn’t as strict to begin with, but still began a five-phase easing starting on May 11, as well.
Since Austria hadn’t seen a spike since it reopened small shops mid-April, it opened larger ones in early May with a plan to fully reopen by the end of the month.
Ireland’s relatively strict lockdown will begin easing in five stages, starting May 18 with outdoor activities and labor.
Schools in Spain will remain shut until September, although some public spaces were permitted to open at only 30% to 50% capacity.
Italy, the then-utmost epicenter of the virus, began opening its gates since May 11 and would continue until June 1 to open bars and restaurants.
Contrary to the United States, the eurozone is seeing declining death rates caused by the coronavirus. France’s toll dropped to its lowest since early April while Spain’s fatalities fell below 200. Spain is also one of the countries slowly reopening its own economy.
What does this mean?
If the eurozone manages to recover its economy, with careful hygiene and maintenance, the bloc might see its employment rates surge back up at least by the end of the second quarter 2020. This could dampen the aforementioned GDP slump, if not by the first quarter of next year.
Plus, the Federal Reserve initiated an unlimited quantitative easing response, in addition to an interest rate at exactly 0.00%. The benchmark rate could only raise in 2021, which could mean that the US dollar’s appeal might waver once the eurozone recovers.
These recoveries, on top of America’s prolonged slowdown, will drive investors closer to the euro well into until the first half of 2021 unless its government, health officials, business owners, and citizens learn to coordinate.