Eurozone economy faces increasing difficulties

Tuesday, 2020-08-04 16:53:05
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The European economy has officially entered recession. (Photo: Reuters)
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NDO - The European economy has officially entered recession as the second quarter of 2020 statistics show that the economic growth rate of the Eurozone has decreased by 12.1% compared to the same period last year. The COVID-19 pandemic and the euro’s appreciation are among the obstacles that are making it difficult for the European economy to escape from its current difficulties.

According to the Statistical office of the EU, in the second quarter of 2020, the Eurozone economy was strongly affected by the COVID-19 crisis as Gross Domestic Product (GDP) decreased by 12.1%, the strongest decline since 1995. Worryingly, all of the region’s leading economies, including those that have stood up to previous financial crises such as Germany and France, have witnessed a strong decline.

The National Institute of Statistics and Economic Studies of France said that the French economy dropped by 13.8% in the second quarter due to the impact of anti-epidemic measures. The French economy has thus experienced negative growth for three consecutive quarters. The French Finance Minister has affirmed that France is not powerless in the face of the current disease crisis. However, reviving France’s plunging economy in the current context could be “a mission impossible”.

Meanwhile, statistics in other major European economies have also highlighted the dark economic picture for the Old Continent. Germany announced a GDP decline of 10.1%, while Italy, Portugal and Spain recorded GDP reductions of 12.4%, 14.1% and 18.5%, respectively.

China’s Xinhua News Agency quoted German economic experts as saying that the above figures showed that the economic recession of the EU members is even worse than previous predictions. Although the new statistics are preliminary estimates and may be slightly adjusted in the next few weeks, it can be seen that the Eurozone economy has been negatively affected in recent months.

According to economic experts, the main reason for the sharp decline is due to strict blockade measures in Europe since early March to prevent the spread of the epidemic, resulting in the suspense of most industrial production activities, affecting consumer and business confidence, as well as slowing down global trade.

At present, the COVID-19 pandemic and the appreciation of the euro are also major obstacles to EU member countries’ economic recovery. Although Europe is no longer the centre of the global epidemic, the risk of a second wave is still greatly hindering efforts to revive the continent’s economic activity.

Meanwhile, the recent appreciation of the euro against the US dollar has also made it difficult for European enterprises to export. Since mid-May, the euro has increased more than 10% against the US dollar. Some economists say that the main reason for the price rise is the prospect of a better economic recovery in Europe than in the US, where the COVID-19 pandemic is still rampant.

For EU exporters, price increases are a disadvantage because European goods will be more expensive. Another significant challenge for the European economy is that public debt is rising sharply across the Eurozone and even rising to dangerous levels in some Southern European countries, especially Italy.

In the context that the economy is in an extremely difficult situation, the biggest hope and fulcrum for countries to escape the crisis at this time is the European economic recovery fund, which was recently approved for use by EU leaders.

EU leaders clinched an historic deal on a massive stimulus plan for their coronavirus-throttled economies after a fractious summit lasting almost five days. They hope the EUR750 billion (US$857.33 billion) recovery fund and its related EUR1.1 trillion 2021-2027 budget will help repair the continent’s deep recession.

It is expected that the EU members will eliminate existing disagreements and work together to fight against disease and revive growth momentum so that the regional economy will hopefully soon see “the light at the end of the tunnel”.