Just like we keep close track of U.S. economy and our own economy all the time, we should not forget about the economic situation in Europe as well. Any improvement in European economy would definitely help Turkish have reasonably good economic performance.
However, current economic conditions in European Union, one of Turkey’s biggest trade partners, don’t seem to be very promising. Latest statements by Christine Lagarde, President of the European Central Bank, have unfortunately caused a bit of despair around the continent.
Ms. Lagarde said: “A sharp downturn in Eurozone economic activity in April suggests that the impact of the coronavirus is likely to be even more severe in the second quarter.” The only worrisome thing here is that she did not indicate an exact size of contraction.
Well, ECB is not able to do anything about it because its core policy rate hits record low for the moment. That’s why she especially pointed out that rates will remain intact until they can achieve their inflation target which will be seen as a sign for economic recovery. She, accordingly, said she’ll continue with the ECB’s bond-buying.
About the inflation expectations, Ms. Lagarde said that the Eurozone will finish 2020 with an inflation rate of 0.3 percent. This is seen picking up to 0.8 percent and 1.3 percent respectively in 2021 and 2022, which means eurozone will face some big challenges before it could achieve economic recovery.
“But still and all, parity goes up…”
President of the European Central Bank was not able to offer any forecast about the duration of the economic recovery just like she could not provide any information about the size of the contraction. But she has a clear prediction for 2020. Indicating that EU economy will shrink by 8.7% in 2020, Ms. Lagarde said the Eurozone is expected to gather its economic strength back in the third quarter.
Lagarde’s conference to the press also involved the previously unveiled package of stimulus; she said that QE will continue despite German court ruling. Germans don’t want the ECB to throw money around just like the Fed does. To ease German tensions, ECB President said nothing but she would eventually find a way to reach a consensus with Germany.
But still and all, EUR/USD parity keeps rising because of both technical and political issues. Experts indicated that the EUR/USD graphic has been suffering from contraction for a very long time now and an upward trend would eventually become unavoidable. On the other hand, the fact that ECB boosted bond-buying stimulus package by another €600bn and the seemingly never-ending turmoil in the United States cause parity to go further up.
As EU economy keeps struggling, this was good news for us in terms of helping increase the dollar-denominated value and performance of Turkish exports.