The euro zone economy will drop deeper into recession this year and a mild rebound will follow in 2021, according to a European Commission forecast.
The EU executive said the 19-nation single currency area would contract by a record 8.7% this year before rising by 6.1% in 2021. In early May, the Commission had forecast a downturn this year of 7.7% and a mild rebound in 2021 of 6.3%.
The Commission said it had to revise its previous forecasts. The lifting of COVID-19 lockdown measures in euro zone countries was proceeding less swiftly than it had initially predicted.
The new figures indicate an economic recovery gathering momentum in June, although based on a number of “critical” assumptions. The forecasts assume no second wave of infections triggering renewed restrictions, although social distancing measures would persist. In addition, analysts expect monetary and fiscal policy measures to support the recovery.
The main risks include a potential wave of new infections and the absence of a EU-UK future relationship deal. The Commission said its inflation forecasts were little changed, at 0.3% this year and 1.1% in 2021.
On the COVID-19 front, sixteen U.S. states have reported record increases in new COVID-19 cases in the first five days of July. Other parts of the world, such as Australia, have also been hit by a resurgence in new infections.
Further, investors are watching nervously as US infections surge, but they assume that more massive lockdowns are unlikely. Alarming spread of the virus could setback the business activity which is attempting to regain momentum.
START TRADINGForex – Mild rebound for Euro zone economy
Risk currencies such as the Australian dollar took a breather from recent gains. Riskier currencies have rallied strongly since April alongside increased risk appetite in global markets.
New coronavirus flare-ups and regional lockdowns in some countries curbed buying and lifted the dollar. The dollar index in the meanwhile, rose 0.2% to 96.972.
The US dollar gained 0.2% against the yen, to trade at 107.595.
The Australian dollar sank 0.5% to its U.S. counterpart after the announcement, last trading at $0.6940. Aussie had no reaction to the country’s central bank leaving rates unchanged.
The New Zealand dollar last sat steady at $0.6554. Like the Aussie, the kiwi pulled back from testing the top of a range it has kept for about a month.
The euro sat just below a two-week high touched on Monday at $1.1311.
Sterling held near a three-week high against the dollar and gained against the euro on Tuesday. Investors waited for more details of the government’s plans to support the British economy. Despite the pound’s gains, some investors remained cautious about the currency’s outlook.
Against the dollar, the pound was lower at $1.2475 but within striking distance of a June 18 high of $1.2568. Against the euro, it rose 0.1% to 90.49 pence.
In commodity markets, oil prices fell amid concerns that a surge in new coronavirus cases will hamper any recovery in fuel demand.
Brent crude futures declined by 44 cents, or 1.02%, to $42.66, by 0935 GMT, after hitting a high of $43.19. U.S. WTI crude futures fell 53 cents, or 1.3%, to $40.10 a barrel, after a high of $40.79.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, Investing, CNN money