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European Economic Forecast Autumn 2020

November 10, 2020 By Mircea Vasiu

Last Thursday, the European Commission released the EU Economic Forecast for the autumn of 2020. The detailed report comes out quarterly, and it represents the forecast for the next couple of years regarding the economic evolution of the EU member states.

Moreover, it shows a detailed view (i.e., it covers over 180 variables) of each economy but also of the European Union economies as a whole. If you want, it serves as the base for evaluating economic trends and, why not, building an investment thesis.

Last week’s report painted a gloomy picture for the European economies. Unsurprisingly, we may say, considering the lockdowns and curfews in place in many countries.

Key Insights From the European Economic Forecast

For currency traders interested in the impact on the common currency, the first half of the report is of more interest. It covers the overall developments in the past three months, and the second part refers to each country’s individual performance.

The report shows that the pandemic stopped the small recovery that began over the summer. The resurgence in cases shows divergences across European countries, leading to an uncertain economic outlook.

The paper points out that the global GDP, excluding the EU, will contract more than it did during the 2008-2009 Great Financial Crisis. Labor markets in the European Union have suffered from severe strain. Unprecedented job losses led to an unprecedented monetary and fiscal response from European governments.

Inflation fell into negative territory in August and September. Moreover, the forecast for the period ahead looks gloomy as well, albeit energy prices recovered this week since the report was issued.

As a result, the annual real GDP is expected to shrink by 7.8% in 2020. Even if the 2021 and 2022 growth forecast of 4.2%, respectively 3%, will materialize, there is still not enough to recover the loss of economic growth during 2020.

Moreover, the recent government decision on the back of the pandemic’s evolution will further impact economic growth. The report does not consider the full impact of the latest lockdowns for the simple reason that it is hard to tell how long they will last and what the economic consequences will be.

All in all, a gloomy report, coming out during the U.S. elections week. For this reason, Euro traders discounted it, and the EURUSD traded over 1.19 yesterday. However, the economic reality usually catches up with the markets sooner or later – and the United States is better positioned than the European Union at this point in time.