The euro was trading in a narrow side channel in the first half of the day after several unsuccessful attempts to get above the local high in the area of 1.1990. The data on the inflation of the eurozone countries did not have any impact on the trading instrument, as they coincided with the forecasts of economists. Today's revision of the growth rate of the German economy attracted more attention.
Germany's leading research institutes have revised their joint growth forecast for Europe's largest economy for 2021. The report indicates that the long-term impact of the lockdown due to the coronavirus pandemic is forcing adjustments, which is holding back the country's recovery. The decline in Germany's gross domestic product growth rate to 3.7% from 4.7% also reflects a slow vaccination campaign against COVID-19, which forced the government to extend quarantine restrictions in March this year. The forecast for 2022 was revised from 2.7% to 3.9%. The economy is expected to have shrunk by 1.8% in the first quarter of this year, and this is at a time when Germany is struggling further to control the third wave of infections, and Chancellor Angela Merkel is seeking to impose even tougher restrictions. The study said that the rules are not expected to be relaxed any time soon until the middle of the second quarter and that the restrictions are likely to remain in place until the end of the third quarter. This may also lead to a weaker spring growth rate.
As for production, on which quite a lot of the German economy depends, the report predicts it will grow by 3% this year after shrinking by about 5% in 2020. The return to the pre-pandemic level will occur only in the middle of 2022. It is expected that the Ministry of Economy will soon publish its forecasts in this regard, and although production is currently showing stable growth, serious problems remain in the retail trade and services sector.
Today, important data on consumer prices in Germany were released, which grew at the fastest pace in the last year. The statistical office Destatis noted that consumer prices rose by 1.7% year-on-year in March, completely coinciding with the preliminary estimate. In February, an increase of 1.3% was recorded. Such high growth rates were last seen before the coronavirus pandemic in February 2020.
However, you should not be too happy, since most of the price increase is directly related to the cancellation of the temporary reduction in the rates of value-added tax, which is now being re-applied in Germany. In March, prices for goods increased by 1.9%, and for services - by 1.6%. Food prices rose 1.6 percent and energy prices rose 4.8 percent. As for the basic indicator, it grew by 1.4% in March.
It all depends on the rich pensioners
It is worth saying that Germany alone will not be enough for the active economic growth of the eurozone. Attention today was drawn to another study, which says that for a major economic boom, the eurozone needs a proportional increase in consumption. To do this, those citizens who saved money during the coronavirus pandemic will have to spend a little bit. The focus, in this case, is on the huge mass of savings accumulated by wealthier households left at home without going to restaurants or vacations during the coronavirus pandemic crisis. The danger, however, is that large savings are concentrated in the hands of older Europeans, who are less likely to open their wallets than their younger counterparts. Whether this group of consumers will use their freedom to go out and spend money when the pandemic subsides is crucial to assessing the recovery of most advanced economies. However, this is most important in Europe, which has the highest average age of any region in the world. How much money are we talking about? Barclays Plc estimates excess savings of around 600 billion euros. If they enter the economy, this will lead to very serious growth, which will partially reduce the burden on the European regulator, which has been trying for the last year to save the faltering European economy from sliding into recession. Although, as the latest forecasts of economists show, both the first and second quarters for the eurozone GDP may be negative.
As for other economic indicators, the data on consumer price inflation in France also did not surprise traders. A report from statistics bureau Insee on Thursday showed that consumer prices rose 1.1% year-on-year in March, in line with a preliminary estimate, after rising 0.6% in February. This was the strongest increase since February 2020, when prices rose by 1.4%. Annual service price growth accelerated to 1.1% from 0.8%, while energy price growth rose to 4.7%. Core inflation accelerated to 0.8% in March from 0.6% in February.
As for Italy, everything is also according to the expectations of economists. Consumer prices rose in March. According to statistics bureau Istat, the price increase was 0.8% year-on-year, compared with 0.6% in February. Energy prices jumped 1.7%, while the cost of services rose 2.2%. Every month, consumer prices rose 0.3% in March.
As for the technical picture of the EURUSD pair, it has not changed compared to the morning forecast. In the first half of the day, we did not manage to break above a fairly large resistance in the area of 1.1980. Given that there was no normal downward correction this month, the maximum that the bulls will be able to achieve is the removal of the bears' stop orders somewhere in the area of the 20th figure, and that's all. So be very careful with buying the euro at the current highs, as a downward correction may take place in the near future. A break of the large support of 1.1953 will certainly increase the pressure on the euro, which will open a direct road to the area of the lows of 1.1920 and 1.1880. If my expectations turn out to be wrong, and the bulls easily take the level of 1.1990 today, the growth of risky assets may continue to the area of 1.2050 and 1.2110.
COVID-19
In conclusion, I would like to note that despite the desperate measures taken by Europeans to combat the coronavirus pandemic, according to the World Health Organization, the number of deaths from COVID-19 in Europe has exceeded 1 million people. The WHO believes that the situation remains serious, as about 1.6 million new cases of infections are registered in the region every week. And while there are far fewer problems with vaccine availability, Europe must remain vigilant about social distancing, as variants of the virus lead to the emergence of new strains. According to Johns Hopkins University: there are almost 3 million deaths from COVID-19 worldwide, with America and Europe the most affected.