Since Friday, the EU leaders have discussions for the 750 Billion Euro proposed recovery fund and the next EU’s budget. The big issues were how to divide the shares and how to oversee the execution of the fund. Previously, the EU had approved 540 Billion Euros for economic stimulus funds to counter the coronavirus pandemic shock. The European Central Bank also followed the Federal Reserve’s step for quantitative easing by buying government bonds to inject liquidity in the market, which totals 1.35 Trillion Euro.
The European Central Bank executed the quantitative easing in two steps: 600 Billion Euros and 750 Billion Euros, and plan to continue the program until June 2021 or until the crisis is over. The ECB’s action has lowered the borrowing cost in the market and increased the Euro’s value by 0.25% against the US dollars. However, ECB’s President Lagarde announced that the Euro Zone is expected to face an 8.7% contraction before rebounding to 5.2% growth in 2021 and 3.3% in 2022. The ECB also projected a 15% contraction in the worst case.
The inflation is expected to 0.3% in 2020 and 0.8% in 2021, well below the 2% target. The forecast is heavily weighted on the coronavirus pandemic, and it is subject to change as the situation improves. The ECB also announced that the interest rates remain unchanged. However, the unemployment rate has increased to 7.3% as lockdown restrictions hit jobs. Manufacturing and services have started to rebound as the economy opens up to allow workers to come back to work and increase consumption.
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