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26 Jul, 2020 14:14

Europe’s economy on path to outshine US after coronavirus crisis is over – report

Europe’s economy on path to outshine US after coronavirus crisis is over – report

Europe is set to do better than the US not only in handling the Covid-19 outbreak, with a strikingly lower number of infections, but also when it comes to dealing with the economic fallout of the pandemic, bankers say.

The US economy contracted around five percent in the first three months of this year, and it is expected to crash even more as the deadly virus has only built up momentum since then. According to an International Monetary Fund (IMF) forecast, US gross domestic product is set to nosedive 37 percent in the second quarter and by 6.6 percent for 2020 as a whole. 

The economic outlook for Europe has not been optimistic either, with the European Commission slashing its own forecasts several times, recently saying that it expects the region to contract by 8.3 percent this year. Meanwhile, the IMF predicted that the eurozone, the 19-member region that shares the euro, would contract by more than 10 percent in 2020.

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Despite projected deeper contraction, with new figures set to be released by both Washington and Brussels next week, Europe is headed for a swifter recovery and could outpace the US, analysts at JPMorgan Chase and Goldman Sachs told Bloomberg.

“We also expect it [the eurozone] to bounce back more sharply,” chief European economist at Goldman Sachs Jari Stehn said, as cited by the publication. “It’s pretty rare that the euro area would outgrow the US over a horizon of one to two years.”

Chief economist at JPMorgan Bruce Kasman believes that Europe managed to have “broken the chain” that links mobility and the virus, and “will recover more fully.” Meanwhile, Barclays strategists noted that the US can still catch up with its European peers.

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However, over the last two years, the eurozone’s performance has lagged behind the US, at least by annual economic results. For the year 2019 as a whole, eurozone GDP went up by 1.2 percent, after 1.9 percent growth a year earlier. US GDP growth stood at 2.3 percent last year, less than the 2.9 percent in 2018. According to Bloomberg, over the last 28 years, the eurozone was mostly outpaced by the US, but climbed higher eight times since 1992.

Both Brussels and Washington have been trying to provide more stimulus to their economies to cope with the historic crisis. Earlier this week, European leaders hammered out a €750-billion Covid-19 aid package. Meanwhile, US lawmakers are battling over the size of the next relief plan, expected to be over $1 trillion, as the benefits granted by the previous effort are expiring.

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