S&P Global Ratings upgraded its 2021 European growth forecast last week to 5.1% from 4.4%, citing rapid improvements in economic output, the labor market and high levels of corporate investment. The Organization for Economic Cooperation and Development has a similar view. It said last week that it expects the eurozone economy to expand 5.3% this year, an upgrade of 1 percentage point from its May projection.
Positive Outlook
S&P now expects Europe to return to its pre-crisis level of GDP before the end of this year, one quarter earlier than previously forecast. The economic upswing has been bolstered by the European Union's vaccine campaign, which got off to a slow start but is now one of the world's most successful. More than 72% of EU adults over the age of 18 have been fully vaccinated, according to official data, compared to 66% of Americans over 18.
The emergency response to the coronavirus has also played a major role. The European Central Bank responded to the crisis with a major bond-buying program, and governments rolled out programs to ensure workers were paid.
Surplus reserve
European consumers amassed more than €300 billion ($350 billion) in excess cash reserves during the pandemic, according to S&P, and they're starting to spend, helping to fuel a continued rebound in services. At the same time, EU countries are starting to receive huge grants and cheap loans from the bloc's €800 billion ($940 billion) recovery fund. The stimulus is likely to add 3.9% to eurozone GDP by 2026, according to S&P.
Developments in the US and China
The United States and China face significant headwinds. The vaccine rollout has sputtered in America, where the percentage of people who have received at least one dose is the lowest in the G7. The OECD downgraded its 2021 US forecast last week by 0.9 percentage points to 6%.
China's economy will grow 8.5% this year, according to the OECD. But growth may have stalled in August, according to survey data, as officials tried to stamp out new coronavirus outbreaks. A sweeping regulatory crackdown on private business could further drag on activity, and the country is bracing for the potential collapse of Evergrande.
The fate of the massive property developer remains up in the air after a deadline came and went last week without an update from the company on whether it plans to pay nearly $84 million interest owed to bondholders.
Evergrande of China has about $300 billion in total liabilities, and some analysts fear a disorderly collapse could spark China's "Lehman Bros" moment by sending shocks through the financial system and economy. Real estate and related industries account for about 30% of Chinese GDP.
Can Europe pick up the slack?
Germany's Ifo Business Climate Index declined in September, suggesting the recovery is losing steam in Europe's biggest economy. IHS Markit said that eurozone business activity "grew at a markedly reduced rate" during the month, reflecting supply chain bottlenecks and concerns over the pandemic.
It's possible that the United States, China, and Europe will all struggle through the rest of the year, presenting policymakers with a difficult set of decisions as inflation continues to remain elevated. "The most likely outcome is that the global recovery continues, albeit, at a slower pace, that inflation peaks in the coming quarters before dropping back next year, and that central banks dial back policy support in a gradual and well-signalled manner,".
SOURCE:
CNN 
