The eurozone economy, which accounts for most of Romania’s exports, has missed a start this year and is heading for a new recession, warns some of the world’s largest banks.
Analysts at banks such as JPMorgan Chase and UBS are tightening their forecasts on the eurozone economy to reflect new lockdown restrictions imposed on limiting the spread of the COVID-19 pandemic – in some countries they are tougher than before – and the possibility that a new strain of coronavirus wreaking havoc in Britain to do the same in Continental Europe, writes Bloomberg.
Strategists at ING say the risk is that eurozone GDP will contract again in the first quarter of this year. The slow start of vaccination campaigns does not help to improve the situation, but, experts believe, the region’s economy should start to recover from the second quarter onwards. Maybe this time for good.
December showed how big the economic shock produced by the new pandemic wave is, with the economic activity in the euro area decreasing more than expected, writes Reuters. And in January, the situation probably worsened further as new lockdown restrictions hit the dominant services sector, according to a PMI indicator made by Markit based on responses from companies’ purchasing managers.
Thus, the first three months of this year could be the second consecutive quarter of economic downturn, thus meeting the conditions of a technical recession. The drop is reminiscent of the recession early last year, although it may be less deep than that, and means increasing pressure on indebted governments and the European Central Bank, whose monetary policy council will meet next week to determine how it can provide even more monetary assistance to the euro area. With many businesses destroyed or on the verge of bankruptcy, rising unemployment and government debt at record levels, the ECB brought new incentives last month. The effect of these, and of the expectations that others will follow, is that the yields of the bonds of the euro area states are going steadily downwards. This means lower market financing costs for governments.
Highly published economic indicators show that economic activity in the euro area saw a slight boost in the first week of this year, as people resumed work, but its level is well below that of a year ago.
“Restrictions and slow vaccination campaigns do not help,” says Katharina Utermoehl, an economist at Allianz. “Prolonged restrictions, which started rather easily, are the big problem.”
Bloomberg Economics estimates that euro area GDP will shrink by 4% in the first quarter of 2021 in the pessimistic scenario of the duration of the restrictions. The previous forecast was an increase of 1.3%.
JPMorgan, the largest bank in the United States, has calculated that the eurozone economy contracted a massive contraction of -9% in the last quarter of 2020, and now projects a decrease of 1% for the first quarter of this year. He previously estimated a 2% increase for Q1. UBS expects a negative evolution of -0.4% for the first quarter. Goldman Sachs also predicts a slight contraction, with increasing risks. Brexit also has an impact on the way the economy works.
ING analysts say that in addition to the turmoil caused by the virus, exports may slow down again after the end-of-year sprint, when eurozone companies rushed to deliver products to the UK before talks between London and Brussels on a deal commercial to end in failure. Finally, it was agreed that Brexit should be an orderly one, by agreement.
ING analysts expect that “at best” GDP growth will be zero in the first quarter and that the economy will not return to pre-pandemic levels even in 2022. “2021 got off to a bad start Says chief economist Peter Vanden Houte. “The start of the vaccination campaign has been slow and sometimes chaotic.”
The evolution of the euro area economies has not been uniform in recent months. Germany benefited from the manufacturing base, with factories remaining open while government-imposed lockdown measures closed non-essential stores and much of the hospitality sector. Bloomberg Economics believes that the German economy, the largest in Europe, has even managed to record some growth in the fourth quarter of 2020. Most economists predict that in the second quarter, after more than a year of torment, economies will begin to -and returns. The recovery could be strong, at least initially, with the easing of restrictions and the immunization of the population. An increase in strength could come from money that the population did not spend during the pandemic and which will begin to flow in trade.
A sign that the light at the end of the tunnel is visible, investor confidence in the economy has risen above expectations in January, reaching its highest level since February 2020, thanks to the high chances of a successful vaccination strategy, says Sentix.
In the first nine months of last year, about 40% of Romania’s exports went to Germany, Italy and France, the largest economies in the euro area.
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