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QNB expects Euro area to outperform in second half of 2020

QNB expects Euro area to outperform in second half of 2020

Tribune News Network
Doha
The Euro area is now on track to outperform the US in the second half of 2020, thanks to its control over the virus through lockdown measures like social distancing and widespread face mask wearing, Qatar National Bank (QNB) said in its weekly commentary released on Saturday.
The report added that these measures helped bring down the number of new cases despite a continued reopening of the economy. It warned however that a second wave remains a risk, “but our analysis suggests that Europe is well placed to continue its steady reopening without a significant surge in new cases requiring widespread lockdowns.”
QNB focused in its weekly report on four factors that support the Euro areas continued recovery.
The first factor was that economic activity indicators show a strong rebound from the plunge seen in the second quarter. That weakness was driven by measures that helped control the virus, which are now easing.
“We expect strong growth in the third quarter. With a return to containment measures in the US likely to hamper consumer spending over the summer, we expect the Euro area to outgrow the US in the second half of 2020,” the report said.
The second factor was the agreement reached by EU leaders on the recovery plan and medium-term budget. QNB said that, in combination with the European Central Banks (ECB) purchases of government debt, the recovery plan should close the Euro areas fiscal funding gap for the next two to three years.
The Qatari bank added that the agreement also reflected the deep commitment to the European project, and raised hopes for further fiscal integration.
The third factor was that the recovery plan will enable further fiscal measures at the national level.
QNB said it expects Euro area governments will extend programmes supporting companies and workers to avoid lay-offs, which have been effective at reducing the rise in the unemployment rate.
Further discretionary stimulus has already been announced in Germany (around 3.5 percent of GDP) and France (around 4 percent of GDP).
QNB said that such measures will provide significant fiscal support across the Euro area.
The final factor was the ECB’s providing of considerable monetary stimulus, via low interest rates, liquidity injections and quantitative easing (QE). QNB noted that Euro area inflation has already slowed, with core HICP inflation down to 0.8 percent year-on-year in June from 1.2 percent in February.
ECB President Mme Lagarde stressed that, given high uncertainty and subdued price pressures, the ECB intends to make full use of the increased scope of the pandemic QE programme.
“Effective virus control, improving data and significant support from both fiscal and monetary policy give us confidence in the view that Europe will outperform the US during the second half of 2020.
“We still expect to see a clear north-south divide within the Euro area, with Germany, France and the Nordic countries recovering significantly more quickly than southern countries that are more exposed to the risk of a second wave, given the dependence of their economies on tourism,” the report concluded.

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