Largest economies plan to return to pre-Covid levels by year-end

The world’s largest economies on both sides of the Atlantic have a good chance of making up lost ground caused by the coronavirus pandemic by the end of the year, much faster than economists previously feared .

Economists have revised their forecast for the economic performance of the United States and the euro area upwards after data this week showed the two economies are showing more resilience than expected.

US household spending is starting to show the effects Joe Biden and the eurozone’s $ 1.9 billion stimulus first trimester contraction due to the latest wave of Covid-19 was smaller than economists had expected, according to figures released on Friday. The progress of the bloc in deployment of vaccinations is expected to boost consumer spending over the next few months with the reopening of service sector businesses.

As a result, it is increasingly likely that both economies will return to their pre-pandemic level of production before the end of the year – a marked improvement over the April forecast from the IMF, which suggested it wouldn’t happen until 2022.

After the data was released, James Knightley, chief international economist at ING Bank, said, “Wowzers, the US economy is hot.” Giada Giani of Citi said European indicators were “much stronger in April than we expected”.

Thursday’s first quarter U.S. growth figures left the economy’s output just 0.9% below its pre-pandemic peak and Washington’s stimulus checks boosted household incomes by much more that spending only increased, leaving significant resources unspent.

Economists expect an increase in consumption in the second quarter will help the United States recover the ground lost during the pandemic by the end of June.

US food, transport and entertainment businesses are reopening and Ian Shepherdson, US economist at Pantheon Macroeconomics, said the possibilities for accelerating growth as the economy fully reopens “are considerable.”

He expects the U.S. economy to hit its pre-pandemic economic level before the end of the year. As recently as last month, the IMF predicted that a full recovery in the United States would only take place by now mid-2022.

The outlook has also improved markedly in the euro area, despite record a double-dip recession in the first quarter in figures released Friday. The recent data has been better than economists had feared.

The region’s economy had shown “resilience”, according to Maddalena Martini of Oxford Economics, who said the data “sent encouraging signs regarding the near-term outlook.”

Eurozone output is still 5.5% below its pre-pandemic peak, but economists have said there is room for rapid growth in the second half of the year. Bert Colijn, economist at ING bank, said the “picture of a lackluster eurozone economy is about to change rapidly” as the spread of the coronavirus subsides and the country’s vaccination program Europe is accelerating.

Citi economists said there was a chance the eurozone would return to pre-pandemic production levels before the end of the year, while Holger Schmieding, chief economist at Berenberg Bank, predicted a “surge. ”Demand from May which would raise production above. this level well before the end of 2021.

In April, the IMF said Activity levels in the euro area would remain below the level before the Union pandemic until 2022.

Faster than expected growth and heavy spending on both sides of the Atlantic will pressure central banks to limit their emergency stimulus measures, which were launched last year to contain the crisis.

But the US Federal Reserve and the European Central Bank are likely to resist any move to calm the recovery. Central bankers in the world’s major advanced economies have been unanimous in saying they want to see strong evidence of higher inflation before they cut the pandemic stimulus package.

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