European Economic Indicators
- In October 2020, activity in the service sector dropped significantly. Business activity showed the lowest result in the last 4 months. Small growth is observed only in industrial production.
- Revenues for 70% of European companies dropped. If the situation doesn’t change, then more than 50% of them expect bankruptcy in 2021.
- The performance in the EU's largest economic country is inconsistent. Contrary to forecasts, the industrial production index in Germany peaked in the last 2.5 years. At the same time, activity in the service sector declined to a minimum of the last 4 months. The IFO Business Climate Index also dropped after a six-month rise. This is due to an increase in the number of coronavirus cases.
- The euro remains stable so far but this might change if the EU countries significantly tighten the quarantine measures.
What Supports the European Currency
Euro received support thanks to a powerful stimulus infusion. In October, this amount exceeded 3 billion which led to liquidity increase.
In addition, the diversification of gold and foreign exchange reserves in favor of the euro also strengthens the currency.
Freedom of international trade might also help the euro. This might happen after the weakening of American protectionism in case the Democrats manage to win the US elections.
What to Expect from Euro
Due to the current situation (coronavirus, deflation, Brexit), the European currency might go in any direction. You should carefully monitor the main news and indicators:
- Track the CPI level in the Eurozone. Its fall below zero might lead to a number of events. For example, a decrease in the level of VAT in Germany which will certainly affect the euro exchange rate. However, such fluctuations will only be temporary.
- The volume of unused resources in the EU reached 750 billion which most likely won’t change until December, when the Central Bank plans to implement a policy of quantitative easing in the amount of 500 billion euro. After that, it will be possible to make new economic forecasts.
If ECB President Christine Lagarde doesn’t take any unplanned actions then in the near future the euro will be able to maintain its position. The weakening of the US dollar also contributes to the strengthening of the European currency. It’s possible that after the elections the Fed will start printing new banknotes which will lead to inflation and a decrease in the USD value.
In addition, the coronavirus vaccine is expected by the spring of 2021. This should lead to economic growth worldwide and have an extremely positive effect on the euro rate. Stay tuned for the latest news and be healthy.