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Chief economist update: This rebound is brought to you by the letter V

The gradual easing of restrictions has unfrozen social and business activity in almost every nation that decided to do so.

Central banks and governments can flood the system with all the money they have, or can print, but with consumers not allowed out and/or businesses shuttered, the deluge of liquidity amounts to ... not much.

The reopening of businesses and the relaxation of social restrictions has re-started the motor of commerce.

China led the way, it was the first to shut down and the first to ease restrictions. But it was the Eurozone that suffered the most - underscored by the sharper drop in the IHS/Markit Eurozone PMI that dropped from an expansion reading of 51.6 in February 2020 to a record low 13.6 two months later.

The harder they fall, the stronger they bounce back.

So much so, that the Euro Stoxx-50 index has rebounded by a whopping 34.3% from the eight-year low it plumbed in the middle of March this year.

Latest forecasts by the Organisation for Economic Cooperation and the Development (OECD) and the International Monetary Fund (IMF) tells the same story.

The 'OECD Economic Outlook, June 2020' report shows the Eurozone economy contracting by more than the OECD group nations this year - minus 9.1% versus minus 7.5% (under a single-hit scenario) and minus 11.5% versus minus 9.3% (under a double-hit scenario).

Similarly, the IMF's 'World Economic Outlook, June 2020' report has the Eurozone contracting by more (-10.2%) this year relative to advanced economies (-8.0%).

But stock markets are forward looking. And if they believe the OECD and the IMF's latest projections, the Eurozone will come out on top in the year 2021.

The OECD expects the single currency region's GDP growth to advance by 6.5% (single-hit scenario) or by 3.5% (double-hit) - outperforming the OECD's growth average of 4.8% (singel-hit) or 2.2% (doubel-hit).

The IMF's projections sends the same message. It expects Eurozone GDP growth to bounce back by 6.0% in 2021, stronger than the 4.8% recovery in advanced economies.

Like all other central banks and governments around the world, Eurozone authorities will be doing everything they can to get on top of the pandemic.

But assuming they do, and the virus burns out or fades away or a vaccine is discovered, Eurozone authorities will next have to contend next with a trade war with Trump. America threatened to impose additional tariffs worth around US$3.1 billion of exports from France, Germany, Spain and the UK.

That, or they could wait until saner minds prevail at the November 2020 US presidential elections.

Else, that V in the Eurozone's recovery could turn into a W.

Read our full COVID-19 news coverage and analysis here.

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