ASSESSMENTS

The Eurozone Braces for a Rocky Year

undefined and Director of Analysis at RANE
Adriano Bosoni
Director of Analysis at RANE, Stratfor

Feb 26, 2020 | 10:00 GMT

This photo shows fanned-out 50, 100, 200 and 500 banknotes of the euro, the currency of the eurozone.

An image of fanned-out banknotes of the euro, the currency of the eurozone. A slew of various economic and political risks will hinder growth in the European Union's currency area over the next year.

(Shutterstock/VAKS-Stock Agency)

Highlights

  • Uncertainty about Brexit, a slowing Chinese economy, the coronavirus outbreak and trade disputes with the United States will contribute to slow economic growth in the eurozone in 2020.
  • The European Commission will tolerate eurozone countries increasing public spending to boost economic growth, but a rewriting of the bloc's fiscal rules is improbable.
  • The European Central Bank's policy of low interest rates and large purchases of sovereign debt will become increasingly less effective in boosting economic growth.

Households, companies and investors alike should brace for a year of lackluster economic growth in the eurozone. The European Commission expects the 19-member currency area to grow by only 1.2 percent this year -- the same rate as 2019, but below the 1.9 percent and 2.5 percent growth seen in 2018 and 2017, respectively. While uncertainty about the future of global trade has taken a toll on Europe's economic climate and manufacturing sector, domestic consumption has nonetheless remained strong due to rising employment and modest increases in wages. The next few months, however, will present multiple sources of geopolitical risk that will continue to stall economic expansion across the eurozone, and could potentially lead to temporary recessions in countries such as Italy....

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