The eurozone economy recovered from its pandemic closure in the third quarter but the second wave of infections and partial shutdowns in Germany and France have reignited fears that the 19-member monetary union and the 27-member EU may be headed for a second recession. European Central Bank (ECB) fears for a slowdown and recession sank euro to near three-month lows and a weaker than forecast EMU GDP is set to knock down the common currency, FXStreet’s Analyst Joseph Trevisani briefs.
“Gross Domestic product (GDP), the most encompassing measure of economic activity, is projected to rise 9.4% on the quarter in July August and September after falling 11.4% in the lockdown marred second quarter and 3.6% in the first.”
“Inflation is expected to be unchanged with the annual Consumer Price Index at 0.2% on the year in October and the core yearly rate at -0.3%.”
“Ms. Lagarde has already warned markets that the EU economy is likely to slow enough in the fourth quarter to require additional monetary support. She also made it clear that national governments must raise their fiscal contributions if the economy is to weather the building pandemic impact. That scenario is now front and center for the euro.”
“If third-quarter GDP is weaker than forecast it will confirm Ms. Lagarde’s hypothesis and send the euro lower. If it is stronger, the fourth quarter will be worse. The euro can’t win.”