A gloomy picture

Thursday, 2020-01-09 16:28:46
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The financial district with Germany's Deutsche Bank and Commerzbank is pictured in Frankfurt, Germany, March 18, 2019. (Photo: Reuters)
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NDO - The Eurozone is entering 2020 bearing negative economic signals as production in December is declining its fastest since October, 2012. Analysts have stated that the “economic picture” for the Eurozone will continue to be gloomy this year.

The latest statistics show that the Eurozone economy has experienced a terrible year bearing the lowest growth rate since 2013. Meanwhile, economic experts have said that this situation will continue as badly moving into this year as there are no clear signs of an improvement in the Eurozone economy. Accordingly, Eurozone’s Gross Domestic Product (GDP) will only increase by about 1% this year, even just 0.5% according to separate forecast made by Capital Economics.

The latest IHS survey shows that the Eurozone’s Purchasing Management Index (PMI) was only at 50.6 points in December, 2019, not making an improvement compared to the previous month. Eurozone's inflation index in 2019 also fluctuated around 1%, far below the target of 2% of the bloc, despite the European Central Bank (ECB) deciding to reduce deposit rates from - 0.4% to a new record low of -0.5%. While at the same time also deciding to restart a programme to buy bonds worth EUR20 billion a month from November 2019 to support economic growth and promote inflation. In Germany, the zone's "economic leader", business activity fell for the fourth consecutive month as production declined at its fastest pace since October, 2012.

Analysts have said that this year, the Eurozone economy will continue to face great difficulties such as having an unfavourable external environment; public debt and rising financial risks, while monetary stimulus and fiscal stimulus will not have much room for implementation in 2020. The US-China trade tensions and the UK leaving the European Union (EU), also known as Brexit have negatively affected the Eurozone economy. The US and China have the prospect of reaching the first phase trade agreement, but a deal for the second phase in 2020 is forecast to be "an impossible mission". The Brexit process, meanwhile, has seen “light at the end of the tunnel”, but a post-Brexit trade agreement between the UK and the EU is also considered impossible in 2020 due to having too short a timeframe for negotiations to take place.

Economic experts have also predicted that public debt and financial risks will still be serious problem for Eurozone in 2020 in the context that the inflation index is difficult to improve because of consumption and weak economic growth. The European Commission (EC) in the quarterly economic forecast published at the end of 2019 said that the debt-to-GDP ratio of Italy, the country with the highest public debt in the EU will increase to 136. 8% in 2020 and 137.4% in 2021. France’s budget deficit in 2019 continues to be higher than the ceiling rate of 3% of GDP according to EU regulations.

In terms of a gloomy regional economic picture, the EU has just evaluated that the Eurozone economy will grow by only 1.1% in 2019. According to EC Vice President V. Dombrovskis the European economy has maintained its growth despite the unfavourable external environment. However, European leaders must exert more efforts in the coming time to ensure the economic “health” of the Eurozone as well as achieve the growth target of more than 1% as forecasted.