European Central Bank (ECB) President Christine Lagarde said she expects the eurozone economy to go through a slump ranging from “medium” and “severe”, adding that earlier hopes for a milder downturn were now “out of date”.
Speaking at a virtual event targeted at European youth, Lagarde said she expected the eurozone to fall by between 8% and 12% this year. The ECB was previously forecasting the economy to fall between 5% and 12% this year.
“We’ll have a better sense in a few days as we publish our numbers in early June, but it’s likely we will be in between the medium and severe scenarios,” Lagarde said of the outlook in an online question-and-answer session.
Across Europe many businesses have been forced to close since the spring because of the coronavirus pandemic, costing hundreds of thousands of jobs and furloughing millions more.
Both the central bank and governments have ramped up spending to offer companies and households support. The European Commission will announce a new fiscal stimulus package of as much as €750bn ($823bn) later on Wednesday, two-thirds of which is expected to be in the form of grants to hard-hit member states.
Markets expect governments to provide further bailout packages
In its April world economic outlook report, The International Monetary (IMF) predicted that the European Union economy would fall 7.1% this year. Before the pandemic, the IMF forecast that economic growth in the euro area would be 1.3% this year as compared to 1.2% in 2019.
Meanwhile, the health crisis has changed the economic scenario and the IMF expects the global economy to contract 3% this year. While the shutdowns have helped prevent the spread of the virus, they have taken a big toll on the global economy. Governments globally have announced over $9trn of stimulus. The figure is expected to rise as the US and the European Union consider another round of stimulus.
Lagarde has previously called upon the eurozone governments to increase the fiscal stimulus. The Financial Times reported that Lagarde said, a “common European fiscal response is highly desirable “and it should be swift, sizeable and symmetrical.” She also cautioned that “The cost of the crisis will continue to rise.”
Meanwhile, European stock markets are trading higher today amid expectations of a stimulus. The FTSE 100 in London, the Dax in Frankfurt and the Cac 40 in Paris, were all up around 2% in Wednesday afternoon trading.
MarketWatch reported that Christopher Dembik, head of macro analysis at Saxo Bank said in a note to clients that “A final agreement is expected by at the next EU Council meeting in June. In the interim, Europe is once again wasting precious time needed to fight the crisis.”
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