Eurozone Business Growth Stagnates As COVID-19 Resurges

People shop at the outdoor market and walk about in central Rome on May 9, 2020, during the country’s partial lockdown aimed at curbing the spread of the COVID-19 infection, caused by the novel coronavirus. Tiziana FABI / AFP.

 

Eurozone economic activity stagnated in September as a summer recovery faltered because of a resurgence in the spread of the coronavirus, IHS Markit said Friday.

The firm’s closely watched PMI index fell to 50.1 points from 51.9 points in August, just barely above the key 50-point level which indicates growth.

“A two-speed economy is evident, with factories reporting that production growth was buoyed by rising demand” while the service sectors were hard hit, said Chris Williamson, chief economist at IHS Markit.

The data provider said that Germany, the eurozone’s biggest economy, continued to lead the recovery, though at a slower rate than previously.

France, where services are key, saw business activity “deteriorate” for the first time in fourth months.

The rest of the eurozone — which includes Spain and Italy — suffered a more rapid slowdown, IHS Markit said, noting that staff were being cut across the continent, though at a slower pace.

Williamson saw encouragement “from a further improvement in companies’ expectations for the year ahead, but this optimism often rests on (Covid-19) infection rates falling, which remains far from guaranteed for the coming months.”

Jessica Hinds of Capital Economics warned that the data “suggest that the recovery is grinding to a halt, at least outside the German manufacturing sector.”

AFP

Eurozone Economy To Crash 8.7% In 2020 – EU Forecast

 

The eurozone economy will plunge 8.7 percent in 2020 due to the coronavirus crisis, the European Commission said Tuesday in more pessimistic forecasts that do not see a complete rebound next year.

The new forecasts see the eurozone economy bouncing back by 6.1 percent in 2021, still leaving the region worse off than before the countries were forced to implement lockdowns in an attempt to contain the spread of COVID-19.

“The economic impact of the lockdown is more severe than we initially expected,” said Commission Vice President Valdis Dombrovskis in a statement accompanying the release of the updated forecasts.

“Looking forward to this year and next, we can expect a rebound but we will need to be vigilant about the differing pace of the recovery,” he added.

Germany, the EU’s biggest economy, is expected to see a 6.3 percent contraction this year and 5.3 percent growth in 2021.

The economies of France, Italy and Spain will each contract by more than 10 percent, and then partially recover.

France, the eurozone’s second-largest economy, is expected to contract by 10.6 percent this year and grow by 7.6 percent in 2021.

Italy, which should suffer a 11.2-percent drop this year, is only forecast to rebound by 6.1 percent in 2021.

Spain’s economy is seen as contracting by 10.9 percent before bouncing back by 7.1 percent.

“The policy response across Europe has helped to cushion the blow for our citizens, yet this remains a story of increasing divergence, inequality and insecurity,” said the EU’s economy commissioner, Paolo Gentiloni.

“This is why it is so important to reach a swift agreement on the recovery plan proposed by the Commission –- to inject both new confidence and new financing into our economies at this critical time,” he added.

AFP

Eurozone Business Decline Slows As Lockdown Eases – PMI Survey

Eurozone

 

Private sector economic activity in the eurozone shrank further in June but the rate of decline has slowed compared to the height of the coronavirus lockdown, IHS Markit said Tuesday.

The firm’s closely-watched PMI index rose to 47.5 points from 31.9 in May and a historic low of 13.6 in April but was still below the key 50 points level, which represents a contraction.

“Output and demand are still falling but no longer collapsing,” said Chris Williamson, chief business economist at IHS Markit.

“While second quarter GDP is still likely to have dropped at an unprecedented rate, the rise in the PMI adds to expectations that the lifting of lockdown restrictions will help bring the downturn to an end as we head into the summer.”

Jessica Hinds, European economist at independent analysts Capital Economics, said the survey “suggests that while the GDP outturn will undoubtedly be dreadful, it will not be as catastrophically bad as we had feared.”

Of the 19-nation single currency zone’s largest players, France actually moved into positive territory but giant Germany’s weaker score held the average down.

READ ALSO: Global Trade Set To Shrink 18.5% In Q2, Defying Worst Fears – WTO

“Overall, today’s data provide some reassurance that the economy is getting back on its feet,” Hinds said.

“But with some restrictions still in place and fears of a second wave lingering, it will be some time before activity returns to pre-virus levels.”

As the coronavirus outbreak swept the world in the first half of 2020, eurozone countries and their main partners in the rest of the EU and Britain, imposed lockdowns.

Many businesses and social and cultural life ground to a halt, hammering the economy, but the measures have been credited with getting the epidemic under control.

Governments are now moving — with caution and at varying rates — to return life to normal, hoping to revive businesses and travel in time for the summer tourism season.

AFP

Eurozone Leaders, Greece Agree On Third Bailout

Eurozone leaders on GreeceEurozone leaders have sealed an agreement with Greece over a third bailout after long-winded talks at an emergency meeting.

The development was revealed on twitter by the Chairman of the European Union, Donal Tusk, on Monday.

“Euro summit has unanimously reached agreement. All ready to go for ESM program for Greece with serious reforms and financial support,” Tusk said, referring to the European Stability Mechanism (ESM) bailout fund.

The BBC quoted him as saying that the EU leaders agreed “in principle” on negotiations for the bailout, “which in other words means continued support for Greece”.

In the meantime, the Eurozone had earlier said Greece did not present any concrete proposals to request for a new bailout.

However, Greece’s Prime Minister, Alexis Tsipras, said that after a “tough battle”, Greece had secured a “growth package” of €35bn (£25bn), and won debt restructuring.

Subsequent to the agreement, the country will on Wednesday, need to pass reforms demanded by the Eurozone.

Greece Has Not Presented Any Concrete Proposals – Eurozone

GreeceThe Eurozone says Greece has not presented any concrete proposals to request for a new bailout.

The union’s statement is coming after the ballots were counted as Greece voters rejected the terms of an international bailout in a poll with 61% “no”, against 38% “yes”.

In the meantime, Greek Prime Minister, Alexis Tsipras, said Greeks made a “brave choice” in voting to reject the terms, despite the European officials’ caution that the debt crisis could see the country ejected from the Eurozone.

In another development, Greece’s Finance Minister, Yanis Varoufakis, who often clashed with creditors also resigned.

However, Greece made a presentation earlier on Tuesday to request for a new bailout, but nothing was put on paper.

The country’s new Finance Minister, had been expected to draft a new letter requesting for European stability mechanism support.

The Minister is also expected to present proposals from the Greek side on what the substance would look like, so leaders could reach an agreement.

German Economy Grows Faster Than Expected In Second Quarter

German flags flying outside the ReichstagThe German economy grew strongly in the second quarter raising hopes that the eurozone has come out of recession. Figures just released have shown German gross domestic product (GDP) rose 0.7% in the quarter, slightly ahead of forecasts.

New figures from France showed its economy grew 0.5%, also stronger than expected, in the second quarter. More figures will be released later on Wednesday and are expected to show it back in growth for the first time in six quarters.

German GDP enjoyed its largest expansion in more than a year, driven largely by domestic private and public consumption.

Carsten Brzeski, an economist at ING, said the figures marked an impressive comeback for Germany, which saw its economy stagnate at the start of the year.

“The biggest domestic challenge remains weak investment,” he said.

“Despite very favourable financing conditions and [the] strong international positions of many German companies, domestic investment has been sluggish for a longer while.”Andreas Scheurle from Dekabank said the eurozone been hauled out of recession and Germany had done the lion’s share of that.

“It was made possible by our generous consumers who have again spent more money but the state has also dug deeper into its pockets,” he said.

“But this rhythm can’t be maintained – growth will become more modest and in second half of the year we should see plus 0.3-0.4%.”

The French national statistics agency, Insee, said France’s GDP growth in the second quarter had been driven by a rebound in exports, domestic household demand and public spending.

The April-to-June growth was the strongest quarterly growth since early 2011 when the eurozone was plunged into its sovereign debt crisis.

The French economy has been flat for the past two years, shrinking 0.2% in each of the previous two quarters.

French Finance Minister Pierre Moscovici said Wednesday’s figure “amplifies the encouraging signs of recovery”.

 

Eurozone Banking Union: Ministers Meet In Brussels To Speed Up Plans

Euro Zone ministers met in Brussels today to discuss plans for a banking union.

At the meeting France, Spain and Portugal called for quick progress on the issue while Germany pointed out that treaty change might be needed before plans could be completed.

Under the plan, the biggest banks will be supervised by the European Central Bank from the middle of next year. There is also to be a single bank resolution mechanism that would wind down insolvent banks and a common deposit guarantee scheme.

But while the ECB bank supervision looks set to take effect as planned, the single authority that would order and finance the closure of a bank is unlikely to materialise soon, because Germany believes it needs a change to the EU treaty.

The issue is divisive because a change to the European Union treaty could take years and entails risks — the revised law could be rejected in one of the 27 national EU parliaments during ratification.

Some policy-makers believe Germany is demanding treaty change to push the discussion on bank resolution back until after its parliamentary elections in September, in which Chancellor Angela Merkel will have to deal with rising popular discontent with bailing out euro zone banks and governments.

 

Greece lawmakers back austerity cuts

153 lawmakers in Greece have narrowly backed a fresh round of austerity measures aimed at securing the next round of bailout funds despite violent protests across the country.

The bill which includes tax rises and pension cuts is about 13.5 billion Euros and must be revised before Eurozone finance ministers meet next week to approve 31.5bn euros in fresh loans from the European Union and the International Monetary Fund.

Before the vote on Wednesday, Prime Minister Antonis Samaras warned that without the bailout Greece would run out of money this month and face “catastrophe”.

The austerity package – Greece’s fourth in three years – is meant to close the nation’s budget deficit, lower its huge debt burden and make its economy more competitive.

MPs must now pass a revised budget on Sunday before Eurozone finance ministers meet next week to approve 31.5bn Euros in fresh loans from the European Union (EU) and the International Monetary Fund (IMF) that Greece needs to avoid imminent bankruptcy.

But the level of resistance on the streets is a reminder that implementing the latest tough measures will be extraordinarily difficult.

British PM refuses to join agreed Eurozone deal

British Prime Minister, Mr David Cameron

British Prime Minister, David Cameron on Friday said the UK would not join a new European treaty set up to prevent future crisis from happening again, because EU leaders had not been able to give him the guarantees he had been looking for.

After a marathon meeting that started on Thursday evening and finished at 0600 am on Friday, euro zone member states agreed to create an intergovernmental treaty to forge stricter budgetary controls for the groups member states. But Britain decided to stay out of it.

“I said before coming to Brussels, that if I could not get adequate safeguards for Britain in a new European treaty, then I would not agree to it. What is on offer is not in Britain’s interest, so I didn’t agree to it.

“Let me explain why this matters, of course we want the euro zone countries to come together and to solve their problems, but we should only allow that to open inside the European Union treaties, if there are proper protections for the single market and for other British key interests. Without those safeguards it is better not to have a treaty, but to have those countries make their arrangements separately. That is now what is going to happen,” Cameron said.

Under pressure from conservative eurosceptics back home, Cameron had hoped to win concessions in change of treaty change, namely protection of any rules that could hurt its financial centre London.

“The difference between the in and the outs, those in the euro and those out of the euro has inevitably created tensions within the European Union. Now, there are arrangements within the European treaties to allow different countries to do different things, but these have always been accompanied by adequate safeguards within the treaties. When we can not be given those safeguards in the treaty it is better this is done by intergovernmental arrangements outside the treaty and outside the institutions of the European Union,” Cameron said.

European leaders were holding their eighth crisis summit this year in an attempt to finally stop a sovereign debt crisis that started two years ago in Greece and is now threatening the survival of the single currency.

While Germany and France have been pushing for more fiscal unity and integration between the member states as the only way to prevent future crisises from happening, Cameron said it was better for Britian to have a lose relation with the single currency bloc.

“And so I think the idea of Europe being more of a network where you chose the organisations you join and you chose those organisations you don’t join, is actually a way that Britain can get what we want and what we need.”