Japan and Germany are among the large economies for which analysts’ GDP forecasts were too optimistic, facing steepest contraction on record.
Japan sharply downgraded its GDP forecasts for this fiscal year, expecting the economy to shrink 4.5%. The world’s third-largest economy may suffer its largest contraction because of the pandemic since comparable data became available in 1994.
According to a scenario the Japanese economy could contract about 5% if there is a second large-scale coronavirus outbreak overseas. The gloomy GDP forecasts raise the prospect of more government support, after it already delivered $2.2 trillion worth of stimulus.
Later estimates show that the economy may rebound with a 3.4% growth in the next fiscal year ending March 2022. Also, experts expect the unemployment rate to rise 3.2% this fiscal year and to ease to 2.7% in the fiscal year ending March 2022.
The German economy contracted by a worse-than-expected 10.1% in the second quarter, its steepest contraction on record. On the year, gross domestic product in Europe’s largest economy declined by 11.7% from April to June. The plunge in Germany’s economic output in the second quarter wiped out nearly 10 years of economic growth.
Other EU indicators were more encouraging. Euro zone economic sentiment, for example, rebounded more than expected in July.
Further, the U.S. economy likely contracted at its steepest pace since the Great Depression in the second quarter. The COVID-19 pandemic destroyed consumer and business spending, potentially wiping out more than five years of growth.
Federal Reserve Chair Jerome Powell on Wednesday acknowledged the slowdown in activity. The U.S. central bank kept interest rates near zero and pledged to continue pumping money into the economy.
START TRADINGForex – GDP forecasts proved overly optimistic
Investors are now eying an impasse in Congress on another stimulus package and the latest weekly jobless numbers.
The dollar index regained some lost ground after crashing to 93.17, the weakest since June 2018.
The dollar traded at 104.97 yen, having fallen to 4-1/2-month low of 104.77 hit in previous trade.
The euro retreated after a two-month rally against the dollar, as Germany reported disappointing economic output for the second quarter. The common currency was set to end July with its best monthly gain in a decade, a 4.7% jump. The euro lost about 0.34% to $1.1752.
The Australian dollar was down 0.55% at $0.7148 after hitting its highest levels since April 2019.
The New Zealand dollar slipped 0.57% to $0.6631.
The pound rose against both the dollar and the euro on Thursday, testing the key $1.30 level.
Versus the dollar, the sterling was at $1.3003 at 1015 GMT, up 0.1% since New York’s close. It was up around 0.4% versus a weaker euro, at 90.44 pence. The pound is up 4.8% percent against dollar this month but only 0.2% against the euro.
Gold, which rallied to an all-time high of $1,980.57 on Tuesday, was off 0.56% at $1,959.2 an ounce.
Oil prices fell on Thursday, as surging coronavirus infections around the world threatened to endanger a recovery in fuel demand.
U.S. West Texas Intermediate (WTI) crude futures were down 70 cents, or 1.7%, at $40.57 a barrel.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, Investing, CNN money