The world’s largest economy on both sides of the Atlantic has a better chance of recovering the lost ground caused by the coronavirus pandemic by the end of the year, much faster than economists previously feared.
Economists updated their forecasts for US and eurozone economic performance after data this week showed the same economy showing more strength than expected.
US household spending has begun show effects of Joe Biden’s $ 1.9tn stimulus, and the eurozone’s restraint in the first quarter due to the latest wave of Covid-19 being smaller than economists expected, figures published on Friday showed. The development of the bloc in round vaccinations is expected to improve consumer spending in the coming months as businesses in the service sector also open.
As a result, there is a growing likelihood that both economies will regain their pre -pandemic output levels before the end of the year – a sharp improvement from the IMF estimates in April, suggesting that this will not happen until 2022.
After the data was published, James Knightley, chief international economist at ING bank, said: “Wowzers, the US economy is hot.” Giada Giani of Citi said the signs in Europe were “stronger in April than we expected”.
The first quarter of U.S. growth figures on Thursday left economic output just 0.9 percent below the pre-pandemic peak and Washington stimulus checks that raised household incomes even more with rising spending , leaving significant resources unused.
Economists expect that rising consumption in the second quarter will help the U.S. recover the remaining land lost during the pandemic at the end of June.
The U.S. food, transportation and entertainment service businesses are also opening and Ian Shepherdson, U.S. economist at Pantheon Macroeconomics, said the scope for growth to accelerate as the economy fully opens is also “sufficient”.
He expects the U.S. economy to reach pre-pandemic economic levels before the end of the year. As recently as last month, the IMF forecast that a full recovery in the US will only happen through mid -2022.
The outlook has also developed significantly in the eurozone, despite this logging a declining fall in the first quarter of the numbers published on Friday. The latest data is better than economists fear.
The area’s economy has shown “resilience”, according to Maddalena Martini of Oxford Economics, who said the data “sends encouraging signs surrounding the near-term outlook”.
Eurozone output is still 5.5 percent below the pre-pandemic peak but economists say there is coverage for rapid growth in the second half of the year. Bert Colijn, economist at ING bank, said that “the picture of a declining eurozone economy is set to change quickly” as the spread of the coronavirus and the vaccination program spread in Europe.
Citi economists say there is a chance that the eurozone will return to pre-pandemic output levels before the end of the year, while Holger Schmieding, chief economist at Berenberg bank, predicts a “surge” in demand from in May to come out at a good level before the end of 2021.
In April, said the IMF The level of activity in the eurozone will continue below the pre-pandemic level in the bloc until 2022.
Faster growth and faster spending on both sides of the Atlantic will put pressure on central banks to limit their emergency stimulus measures, launched last year to stem the crisis.
But the U.S. Federal Reserve and the European Central Bank will both resist any move to get the heat out of recovery. Central bankers across the world’s leading economies are united in saying they want to see strong evidence of higher inflation before pandemic stimulus measures slow down.