While no economy has been spared from the ravages of the recent downturn, it is becoming increasingly clear that some will bounce back to normality more quickly than others.
All eyes are currently on the EU, the world’s largest economy, and the US, the world’s economic superpower, to see how each has weathered the current crisis.
As the US becomes mired in crisis and seems unable to guarantee stability, the EU is looking increasingly like an economic dynamo, something that few people would have predicted just a few months ago.
Pundits generally agree that the EU is on track to see a much faster and stronger economic recovery than the US, an undeniable reversal of positions that will likely serve as a further blow to America’s global standing. Let’s take a closer look at what is actually happening, and what it all means.
A Strong EU Economy, But a Weak Euro
While the current data shows quite clearly that the EU is outperforming the US economy in terms of GDP growth, employment, and wage growth, there is one outlier. The euro currency is currently at its lowest value in 30 years, with little signs of growth in the near-term.
However, it’s worth emphasizing that this doesn’t mean that the US economy has an advantage. If you’re wondering what is forex trading and how does it work, this guide explains exactly how different economic factors affect currency values and make them fluctuate.
In this case, while the value of the euro might be lower than expected, this is offset by a falling US dollar, which has shed value against the euro as investors that once saw the dollar as a ‘safe haven’ asset pull out. This fall in the price of the dollar, which stems from the loss of confidence in the US economy, has not corresponded with a rise in the value of the euro.
However, that is not necessarily bad for Europe. If the Euro became too valuable, it would make its exports less competitive, while also potentially deterring investors. This way it gets the best of both worlds.
Will the EU Outpace the US in the Long-Term?
Of course, it might be tempting for some pundits to suggest that the EU’s current bright prospects are merely the result of a temporary dip in US economic confidence that will soon subside. Many still remember how much faster the US recovery from the 2008 market crash, while the EU entered a double-dip recession that spawned the years-long eurozone crisis.
However, there are plenty of signs that indicate things will be different this time around. One of these is simply the fact that the collateral economic damage has already clearly been so much less severe in Europe.
Unemployment in the EU is a fraction of what it is in the US, thanks to generous furlough schemes and strong social safety nets that have convinced employers to keep going. The quicker reopening of the EU economy, thanks to a more effective lockdown effort, has meant that consumer spending has remained relatively robust, especially compared to the US.
Then there are the wider long-term effects of America’s poor economic planning, such as mass evictions, skyrocketing household debt, and another looming mortgage crisis, all of which are not on the horizon in most European economies.
We still have a long road ahead of us, and the current dire outlook for the US economy could improve. However, as things currently stand, it is becoming apparent that the EU will outpace the US on virtually every measure.