As we have seen during the last few months since the start of lockdown the fall in GDP both in the Eurozone and the UK have been dramatic. During 2009 the world’s economy fell by 0.1% which is different to that predicted by the International Monetary Fund who has suggested 2020 could see a fall in GDP of 5%.
However, more recently the IMF have revised their figures with an expected contraction of 3%. Another body the World Trade Organisation has predicted the second quarter globally to be 18.5% down compared to the year previously. This is clearly a huge concern but not unexpected as almost everywhere went into lockdown during the second quarter of 2020 as the Coronavirus spread across the globe.
This weekend the UK will reopen pubs and restaurants in what has been dubbed by some as independence day as it falls of 4th July. However, pubs and restaurants will still have time restrictions as well as the number of visitors limited. The news of pubs reopening is another sign that the economy is starting to recover from its recent closure but with so many job cuts already this week we could see further rises in unemployment figures once the furlough period starts coming to an end later this year.
Bank of England member Andy Haldane has suggested that the UK may be on course for a ‘V-shaped’ recovery rather than a ‘W’. With the Bank of England having cut interest rates early in the lockdown phase there are claims that this gave enough support to the economy during this period and these comments have helped give some strength to the pound vs the euro.
Is the Virus Getting Under Control?
As second wave of the virus is something that is of major concerns to both scientists and governments across the globe. In the US there has been reporting in excess of 30,000 daily cases with yesterday’s figure for the world’s leading economy to show 50,000 new cases reported. It could be argued that the US has better reporting capability but it does highlight the problems that the country is still facing caused by the pandemic. A number of states including Texas have halted their reopening of the economy in order to reduce the spread and try and attempt to contain the virus.
In the meantime the UK’s 7 day average has fallen to just over 1,000 compared to the peak of over 5,500 which happened at the end of the second week of April. With Leicester having been locked down we could see other areas whereby local lockdowns could occur in an attempt to stop the virus spreading from further afield.
Is the Eurozone on the Path to Recovery?
As the Eurozone was one of the first areas to experience the problem, they were also one of the first areas to go not lockdown. Therefore, their reopening has come weeks before the UK so there is an argument to suggest that the Eurozone will show quicker improvements compared to that seen in the UK. Eurozone manufacturing data which was published yesterday showed a slightly higher figure than expected which provided the euro with some short term strength against the pound.
We could see further movements for euro exchange rates later today at 10am when the Eurozone releases its latest set of unemployment data. The consensus is for 7.7% for May so anything different could provide clues as to the recovery of the Eurozone and how quickly it will come. Therefore, keep a close eye out on this particular data release.
Over the weekend the European Central Bank president is due to hold a press conference. The likelihood is that the coverage will include their reaction to the outbreak and how successful the approach taken has been. Therefore, we could see some movement for euro exchange rates early next week depending on the outcome of the press conference so make sure you’re well prepared to move quickly if markets move owing to the sentiment surrounding the announcement.
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