Germany Plunged The Euro Zone into A Technical Recession at The End of March
The IFO institute forecasts a fall in German GDP of 0.7% in the first quarter of the year. The new decline in the main economy of the euro zone will end up dragging the region into a technical recession, after two consecutive quarters of falls, as the Economist already advanced on March 4 after analyzing the European leading indicators.
The GDP of the euro zone registered a quarterly decline of 0.7% in the fourth quarter of the year. The ECB has been contemplating this scenario for months. The IFO recently lowered its forecasts for this year. Specifically, it reduced the growth forecast for this year by five tenths to 3.7%.
The European Central Bank (ECB) has been contemplating a double recession scenario in Europe for months. Christine Lagarde, president of the ECB, warned in January of the risks. “Incoming economic data, surveys and high-frequency indicators suggest that the outbreaks of the pandemic and the intensification of containment measures have likely led to a decrease in activity in the fourth quarter of 2020 and are also expected to influence in activity in the first quarter of this year, “he said in his speech.
The ECB already warned in its latest forecasts of this situation in the European Union
In its December forecasts, the supervisor expected a contraction of the euro zone GDP of 7.3% in 2020, followed by a rebound of 3.9% in 2021 and an acceleration of the growth rate to 4.2% a year later. However, Lagarde warned that expectations have worsened, “condemning the eurozone to a double recession.” PMI indicators also warned of the possibility of a double recession.
On the other hand, the International Monetary Fund (IMF), which is already preparing an update of its economic perspectives, warned this week that the global economy faces “divergent recoveries” between different countries, even if the rate of vaccination increases.
“We are seeing an overall improvement in the world economy, but with too many countries and people, too many, still lagging behind,” said Gerry Rice, the spokesman for the Washington-based institution. The Fund will publish its new growth forecasts for the world economy on April 6, after predicting in January that it would experience a strong rebound of 5.5% this year, after contracting 3.5% in 2020.
However, the institution led by Kristalina Georgieva warned that the outlook is affected by “extraordinary uncertainty”, and affirmed that the world economy will lose 22 trillion dollars between 2020 and 2025 due to the pandemic.
That said, the IMF acknowledged that the recent $ 1.9 trillion stimulus package approved by US President Joe Biden will boost growth both in the world’s largest economy and internationally. In fact, according to his calculations, it will expand US GDP by between five and six percent in three years. It will also increase demand, helping other countries sell more products to American consumers.
Just last week, the Chairman of the Federal Reserve, Jerome Powell, agreed that a very strong demand in the United States would also support global activity.
“I would love for Europe to grow faster and for the deployment of the vaccine to be more fluid but I am not too concerned in the short term because we are on the right track, with very strong fiscal support,” he said, referring to European fatigue.
But the growth divergence is not just with Europe. A Reuters poll last month estimated that Japan would also suffer a contraction in the first quarter and that growth for fiscal year 2021 will be only 3.6%.
Now the Democratic Administration led by President Joe Biden is expected to unveil a measure to improve America’s infrastructure that could cost another $ 3 trillion. Although the Secretary of the Treasury, Janet Yellen, dropped this week that these plans could be financed in part with tax increases, it is true that, to a large extent, they will increase both the levels of public debt and the national deficit.
The World Bank expects China to lead
The World Bank expects China to lead the recovery of the East Asian and Pacific economies this year. The latest economic report from the international organization foresees that the Asian giant’s economy will grow by 8.1% in this year 2021, compared to 2.3% the previous year, and will promote growth of 7.4% in the entire Asian region, compared to 1.2% in 2020.
Germany Plunged The Euro Zone into A Technical Recession at The End of March - /10