Many traders waited for the European Commission report, from which it would be possible to make a more or less realistic assessment of future developments in the Eurozone economy, as well as make assumptions about what the further actions of the European Central Bank will be in relation to the expansion of the asset buyback program, which recently conducted a fierce debate. It is already clear that without a strong recovery plan, there are risks of divergences within the Eurozone that will threaten the stability of the currency bloc, but much will depend on whether there will be a new round of infection that will lead to an even greater reduction in GDP.
The report is not very pleasant, and the real impact of the coronavirus pandemic on the economy can be seen from today's forecasts provided by the European Commission. The Eurozone's GDP is expected to decline by 7.7% in 2020, against the previous forecast of 1.2% growth. For 2021, the Eurozone's GDP is projected to grow by 6.3% against the previous forecast of 1.2% growth. As for inflationary pressure, deflation will be avoided, although inflation in the Eurozone is expected to be 0.2% in 2020, against the previous forecast of 1.3%. In 2021, the European Commission forecasts inflation in the euro area at 1.1% against the previous forecast of 1.4%. The unemployment rate is not as bad as it might have seemed earlier. Economists forecast unemployment in the Eurozone in 2020 at 9.6% against the November forecast of 7.4%, and in 2021 it will fall to the level of 8.6%.
More interesting figures are related to the budget deficit, which will grow to 8.5% in the euro area as a whole in 2020, against the November forecast of 0.9%, and the debt-to-GDP ratio will be 102.7%. As for 2021, the Eurozone budget deficit will fall to 3.5% against the November forecast of 1.0%, and the debt-to-GDP ratio of the Eurozone will be at 98.8%.
If we take a breakdown specifically by country, the Italian economy will suffer the most, where European Commission economists predict a fall in real GDP by 9.5% in 2020 and its growth by 6.5% in 2021. Public debt to GDP in Italy will jump to the level of 153.6% by the end of 2021, which is clearly beyond the limits set by the ECB. In France, the economy is expected to decline by 8.2% and grow by 7.4%, respectively. The least affected is Germany's GDP, which will decline by 6.5% in 2020 and show growth of 5.9% in 2021.
Today's fundamental reports once again confirmed that the forecasts of the European Commission may be more positive, while the real situation may be much worse. Thus, according to the EU statistics agency, retail sales in the euro area in March 2020 fell immediately by 11.2% compared to February and by 9.2% compared to the same period of the previous year. However, it is worth remembering that March is only the beginning of the pandemic, while in April the indicator may be much worse.
The sharp decline in orders in the German manufacturing sector was not a surprise to anyone. According to a report from the German Federal Bureau of Statistics Destatis, orders in the German manufacturing sector fell by 15.6% in March compared to February, while economists had forecast a fall in orders of only 10.0%. Compared to March last year, the indicator decreased by 16.0%. External orders were the most affected due to the disruption of logistics chains. The decline was more than 16%, while domestic orders did not lag far behind and fell by 14.8% in March.
Today, a number of reports on indices for the services sector of the Eurozone countries were also published, which became an addition to the manufacturing sector, resulting in the output of the overall composite index. However, experts note that current data do not reflect the scale of the impact of coronavirus on the economy since these reports do not cover the retail sector. However, traders do not particularly react to these negative reports, as at the moment they are more interested in how quickly the economy can recover after this and whether the European regulator and authorities have enough margin of safety to get out of the current crisis with minimal losses. What is important is how the business and economy will restart after the pandemic, and what will be the reaction of consumers who remain cautious for a long time.
According to the data, the purchasing managers' index (PMI) for the Italian services sector in April this year was 10.8 points against 17.4 points in March, with a forecast of 10 points. In France, the index of services sectors was at 10.2 points in April against 27.4 points in March, fully coinciding with the forecasts of economists. Germany showed a more stable performance, where the purchasing managers' index (PMI) for services in April fell to 16.2 points against 31.7 points in March and a forecast of 15.9 points.
In the Eurozone as a whole, the indicator fell to 12 points from 26.4 points in March.
As for the technical picture of the EURUSD pair, the report of the European Commission dropped the trading instrument to another low of 1.0780, from where the bulls attempted to return to the market. However, any growth in the area of major resistances will be met by sales of risky assets in the hope of continuing the bearish trend to the next annual lows. The bulls may have problems in the resistance area of 1.0830 or slightly higher, in the area of 1.0890. Bears will aim for a breakout of 1.0780 and a test of a minimum of 1.0725.
