The coronavirus continues to wreak havoc around the world and as a result, major economies are also feeling its financial impact. The United States and Europe have been hit hard as the virus continues to hit hundreds of countries in crisis. Both regions have experienced significant economic downturns and their paths to recovery can be long and arduous. This is also due to recent fears of a second wave of the virus in many regions. What kind of setbacks will the second wave in these regions mean for the economies remains to be seen.
However, the economic damage caused by the virus and the necessary containment measures appear to be worse than predicted by both economic powers. As such, both regions are now focused on recovery plans and on developing sustainable ways to overcome the current crisis.
If you have invested in EUROstoxx50 or other European indices, you surely know that the pandemic has hit the EU. Europe has plunged into a deep, dark recession as the 27 countries of the European Union saw their combined economies decline by 2020% in the second quarter of 11,9. This is slightly more compared to the US economy which fell to 9,5% over the same period. The good news is that, according to recent studies, and in view of the latest EUR 750 billion resolution fund to be launched, Europe seems to be on track to recover.
France, Italy and Spain were among the most affected countries in Europe, posting an economic slump of 13,8%, 12,4% and 18,5% respectively. According to the latest forecast of the European Commission, the EU region may experience a total economic decline of around 8,3% in 2020. However, this may change.
"The scale and duration of the pandemic and any future blocking measures that may be necessary remain largely unknown," said the European Commission.
Europe versus the United States
The United States and Europe have adopted different strategies to combat the coronavirus, yet each economy is suffering greatly from the pandemic. Europe has focused on welfare programs and national health systems, as well as on a new resolution fund to put the region on a path to economic recovery. By comparison, the United States spent more than Europe easing the economic damage to its region, which in turn benefited investors and led to a major stock market recovery nationwide. Emergency funds for the unemployed made a big difference at the time and allowed millions of Americans to survive without jobs, but that could end soon.
While business may not return to normal in the near future, the US economy appears to be recovering from the negative effects of the virus. The world's largest economy shrank by 32,9% in the last quarter, but economists predict it may actually grow by 18,8% in Q2020 XNUMX, year-on-year. However, if there is no additional support, the economy may continue to decline as employment growth stops and federal unemployment benefits are lower. Sam Bullard, a senior economist at Wells Fargo, said: “The arrears are likely to increase even further if some sort of contract cannot be found to extend additional unemployment benefits. Failure to agree on more stimulus would have a broad economic impact. "
What does this mean for investors?
While the recovery of the economy remains a moot point, US stock markets (such as the NYSE) experienced a rapid recovery after the first wave of the pandemic. Central bankers have taken unprecedented steps to ensure stock markets recover as quickly as possible, which has led Wall Street to bounce back faster than expected. But according to a recent Bank of America study, 37% of investors expect a double recession with a W-shaped recovery. Are they right? Time will tell.
According to a survey by Bloomberg, stock market strategists expect a 3% drop at the end of the year at 3192 for EuroStoxx 50,5. People investing in EuroStoxx50 saw the collapse and growth of the European index in 2020. Between February 19 and March 19, the EURO Stoxx 50 index fell by more than 35%, but by August 25 it increased by more than 40% - although it is still far from the February highs. In fact, European stocks recovered more than half of the losses from the pandemic in months, but are currently stagnating. Global investors do not seem to be concerned about this as sentiment remains positive in the European region, it looks like an attractive area for investment.
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