- 2024-08-28
- News
Eurozone Heads Towards Recession
Amidst the continuous weakening of recent economic data in the Eurozone, a shadow of recession looms. "Winter is coming," and the pain is spreading.
Recently, the euro-to-US dollar exchange rate has plummeted to its lowest point in two years. The euro is now trading at 1.0472 US dollars. Meanwhile, the robust performance of the US economy further supports the rise of the US dollar.
One of Europe's largest asset management companies, Amundi SA, predicts that the euro-to-US dollar exchange rate may fall to parity by the end of the year.
Behind the depreciation of the euro lies not only the sluggish economic growth within the Eurozone but also the impact of the EU's political and fiscal predicaments. At the same time, the relatively strong performance of the US economy has further widened the gap between the US dollar and the euro.
The Eurozone's weak economy and bleak outlook
Amidst the sluggish economic growth, the Eurozone's economic data continues to deteriorate.
The signs of slowing economic growth in the EU are becoming increasingly apparent, especially in Germany and France, the two economic powerhouses of the Eurozone, where the pace of slowdown is more significant.
Advertisement
The overall economic growth of the Eurozone is continuously shrinking, with the composite PMI falling from 50 last month to 48.1, indicating a further trend of economic activity contraction.
The Eurozone's manufacturing PMI has once again dropped to 45.2, showing that the industry has fallen into recession, while the services PMI has fallen from 51.6 in October to 49.2, below the critical point of 50. The manufacturing PMI in France and Germany is even lower, at 43.2, far below the growth line.
The European Central Bank's monetary policy is also in a dilemma. Although the ECB has begun to take interest rate cuts to stimulate economic growth, without effective fiscal support, monetary policy alone is difficult to reverse the downturn in the economy.
Inflationary pressures in the Eurozone still exist, and it is expected that inflation data for October will rise, which will make some hawkish ECB members oppose accelerating the pace of interest rate cuts.
The current market expects the ECB to further cut interest rates in December, but the effectiveness of such policies still has significant uncertainty. If the euro-to-US dollar exchange rate continues to fall, the EU may need to quickly introduce more robust fiscal stimulus policies.
Political predicaments fusion economic recovery, increasing pressure on Eurozone economic recovery
It's not just economic data; political instability within the Eurozone has also increased market uncertainty.
The fiscal issues of France and Italy are particularly prominent, especially in terms of violating EU fiscal deficit rules, the fiscal policies of these two countries are in a predicament.
France's proposed 2025 budget plan failed to pass the National Assembly vote, facing a political crisis. Although Barnier can bypass the parliament, if the government loses the vote of confidence, the entire political system will face the risk of collapse.
The situation in Germany is also not optimistic. The measures Germany takes to deal with economic difficulties are closely related to the progress of the new economic pact in the Eurozone. However, the German Constitutional Court has become the main obstacle to the ECB's implementation of large-scale economic stimulus plans, making it difficult for the EU to make effective fiscal stimulus in the short term.
Compared with the downturn in the Eurozone, the strong recovery of the US economy has become the main driving force for the continuous rise of the US dollar.
According to the latest GDPNow data released by the Atlanta Federal Reserve Bank, the expected GDP growth for the fourth quarter of the United States is 2.6%, showing the resilience of the US economy. The US dollar exchange rate continues to rise, while the weakness of the euro is more apparent.
Even against the backdrop of a weak global economy, the US dollar remains in a strong position. The performance of the US economy, especially the recovery in employment and the stock market has further strengthened the market's confidence in the US dollar.
As global economic growth slows, the challenges faced by the Eurozone will become more severe. If the Eurozone cannot quickly adjust its policies, the "winter" of the euro may continue and even intensify.
- 51 Comments
- 197
- 88