QNB: The Euro zone will surpass America … economically

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Shafaqna – A report by Qatar National Bank «QNB» stated that the euro zone is currently proceeding with a steady step towards economic superiority over the United States during the second half of 2020, indicating that the region was able to control the Corona pandemic well, thanks to local closures and social divergence, The obligation to wear masks is widespread.
As a result, the report indicated that new cases of infection remained low in Europe despite the continuing reopening of the economy, indicating that despite the risks of a possible second wave of the epidemic, QNB analyzes show that Europe is in a good position to continue the reopening operations, without occurring. Significant increase in new infections, requiring extended closures.
In his report, QNB highlighted 4 other factors that support the continued economic recovery in the euro area, including the following:

1- Early indications of activity still indicate that the Eurozone economy is recovering quickly from the sharp slowdown that occurred during the second quarter of the year, as the record decline in real eurozone GDP growth in the second quarter, which was the result of measures taken to control a pandemic, was exceeded. Corona, the euro zone flash composite purchasing managers’ index rose to 54.8 points in July, in the strongest reading since early 2018.
While the activity rate remains low compared to pre-Coved-19 levels, QNB expects strong growth in the third quarter, with consumer spending in the United States likely to be negatively affected during the summer season, due to the return to impose measures to contain the epidemic. An economy is expected to outperform
The euro area on the US economy to grow during the second half of 2020.

2- The European Union leaders took a big step forward by reaching an agreement regarding the economic recovery plan and the medium-term budget during the past week. The final deal reached in this regard is less ambitious than planned, as it included grants worth only 390 billion euros, less than the 500 billion euros mentioned in the initial proposals.
Nevertheless, QNB sees the agreement as another important step for Europe.
Goldman Sachs estimates that “Italy and Spain will receive grants of 5 and 6 percent of GDP, respectively, from 2021 to
2023, in addition to loans at a reduced interest rate of 7 percent of GDP. ”
Besides European Central Bank purchases of government debt securities, this recovery plan will bridge the financial financing gap in the eurozone for a period of two to three years. The plan also shows a deep commitment to the European unity project, which raises hopes for financial integration.

3- The recovery plan will allow more financial measures to be taken at the national level, and QNB expects that eurozone governments will expand programs that support companies and workers to avoid layoffs, which have been effective in curbing high unemployment. Note that an additional discretionary stimulus has already been announced in Germany (about 3.5 percent of GDP) and France (4 percent of GDP), and QNB is likely to provide additional stimulus in Italy (1.5 percent of GDP) ), As well as in Spain, supported by automatic tuning tools and large loan guarantees (contingent liabilities), which will provide significant financial support throughout the eurozone.

4- After taking decisive measures last June, the European Central Bank currently offers significant monetary stimulus through reduced interest rates, liquidity pumping, and quantitative easing. Indeed, Eurozone inflation slowed as core inflation in the Harmonized CPI fell to 0.8.
Percent year on year in June from 1.2 percent during February.
The European Central Bank President, Christine Lagarde, stressed that in light of the increased uncertainty and low price pressures, the European Central Bank intends to take full advantage of the increased scope of the emergency asset purchase program in response to the implications of Covid 19.
Therefore, QNB expects that the ECB will continue to extend the program until mid-2021, before refocusing on the limited set of tools that it was using before QE.
“QNB” concluded its report stressing that effective control of the epidemic and improved data and significant support provided through the fiscal and monetary policies are all factors that support opinions that Europe’s economy will outpace the US economy during the second half of 2020, while a clear variation in performance is still expected between
The north and south of the euro area, as Germany, France and the Nordic countries recover much faster than the countries of the south most at risk of a second wave, given their economies’ reliance on tourism.

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