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Euro zone economic outlook steady but job recovery at high risk: Reuters Poll

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A full bounceback from the euro zone’s deepest recession on record will take two years or more, according to a Reuters poll of economists who also said there is a high risk the job recovery underway reverses by the end of 2020.

Europe was badly hit earlier this year by the coronavirus pandemic, but stringent lockdowns and contact tracing helped get the numbers down and allowed swift re-openings. Along with trillions of euros’ worth of European Central Bank stimulus and a 750 billion euro European Union recovery fund that kicks in next year, sentiment has improved, and the economy is bouncing back along with the euro.

The consensus from the Aug 14-19 Reuters poll points to 8.1% growth this quarter compared with the previous one, easily the fastest on record, following a historic 12.1% contraction in Q2. In May, around the time lockdowns were lifted in most euro zone countries, the Q3 forecast was for 7.2% growth.

Quarterly growth will then slow sharply to 3.0% in Q4, slightly better than the 2.8% predicted last month and still a historically robust rate. However, more than 70% of economists, or 25 of 35 who replied to an additional question, said it would take two or more years for euro zone GDP to reach pre-COVID-19 levels.

Thanks to wide-reaching government furlough programmes that have helped businesses retain workers, euro zone unemployment has risen only slightly to 7.8% in July from 7.2% in February. But about 85% of economists in the poll, 28 of 33 who responded to an additional question, said the risk the job recovery reverses by year-end was high. “Euro zone unemployment almost looks like a Cinderella story. With barely any increase in unemployment, it is currently the belle of the global labour market ball, at least compared to many other developed economies,” said Carsten Brzeski, chief economist, eurozone and global head of macro at ING.
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