Euro’s Survival at Stake as Region on Course for Worst Half Ever
Euro’s Survival at Stake as Region on Course for Worst Half Ever
(Bloomberg) --
The euro-area economy is due to suffer the worst growth ever in its two decades of existence, and lawmakers must unleash fiscal stimulus to ensure the monetary union is preserved, according to Bloomberg Economics.
If governments “step up, the recession will be deep but short-lived,” Bloomberg Economics wrote in a note published on Friday. “If not, there’s a chance the euro won’t survive it.”
While no amount of state support can prevent a collapse in output, authorities taking action is imperative to help the economy find its feet later this year and prevent a prolonged downturn.
“What governments and the European Central Bank should be doing is preventing otherwise viable businesses from going under or laying off staff,” the economists wrote. “That means keeping credit flowing. More importantly, it requires plugging the income gap created by containment measures.”
With people in France, Spain and Italy confined to their homes until mid April, the economy is forecast to shrink 3.1% in first quarter, with another blow of 2.4% in the second.
Germany and France, the bloc’s two largest members, will both experience a 2.5% slump in the January through March period, according to the forecasts. Italy, the epicenter of the outbreak in Europe, is predicted to suffer a whopping 5.1% fall in gross domestic product.
From Rome to Paris and Madrid, governments have begun to unveil plans to guarantee loans for small companies, help those who lose their jobs, and boost spending. Still, the lockdowns across Europe will leave a 350 billion-euro ($375 billion) hole in household incomes and company profits, Bloomberg Economics estimates.
“The danger is that either governments don’t provide a springboard for growth in the second half, or that containment measures are needed for so long that they can’t afford to,” it said. “With monetary policy largely spent and some countries deep in debt, a prolonged downturn could spell disaster for the euro area.”
©2020 Bloomberg L.P.