The markets are bracing for some significantly negative results for last quarter’s GDP.
Although all the talk currently is about the recovery, how far economic activity dropped is an important factor.
It’s necessary to figure out how long we can reasonably expect it to take for the major economies in the world to recover.
These preliminary Q2 GDP figures are likely to be the driving force behind currency and equity moves for the rest of the week.
Germany Doing the Best?
Germany gets a lot of praise for its handling of the pandemic, and it seems to be showing in their economic figures. The hope is that this will give them a faster return to normal, and boosts the Euro Area.
Projections are for the German Q2 GDP to have contracted by -9.0% over the last three months, compared to -2.2% in the first quarter.
Expectations are for annualized GDP to show -11.3% growth compared to the prior reading of -2.3%. This would be the fastest quarterly contraction since WWII.
The US Likely to Take Another Hit
GDP figures from the US come out along with other important data that can rile up the markets. So we are looking for a choppy start to the US session on Thursday.
Projections indicate that US Q2 GDP will have dropped by -34.1% compared to -5% in the first quarter. Money markets are pricing in at least a -30% result in GDP.
Therefore, if analysts are overly pessimistic, there is a chance for a relief rally. This is, of course, assuming that the weekly jobless claims aren’t too disappointing.
Mexico Was Doing Better, but Not Anymore
The initial response to the pandemic in Mexico was somewhat relaxed, and it was late to have a spike in cases.
Also, a large portion of Mexican economic activity is small businesses that have either not shut down or did so later in the quarter.
Consequently, projections for Mexico’s Prelim Q2 GDP are at -17.7% deceleration during the quarter. This is in comparison to -1.2% in the prior reading.
Is Canada Back to Growth?
On Friday we get the monthly change in GDP from Canada, which gives us more up-to-date performance on the economy. It can give us some insight into how things are going with their southern neighbor, given how much trade goes across the border.
Expectations are for June GDP to have grown by 3.5%. This is in comparison to -11.6% in May (the month with the most lockdowns). Of course, there is still a long way to go before Canada can recover the 18.2% loss in GDP they’ve experienced from COVID so far.
Europe First to Recover?
The latest uptick in COVID cases across Europe didn’t start until the start of July, so last quarter ended on a positive note.
Analysts have been a little extra optimistic about the economic impact of the pandemic on Europe. They argue that relatively shorter lockdowns had less of an impact on the economy.
Projections indicate that the eurozone’s flash Q2 quarterly GDP will come in at -12% compared to -3.6% in the prior quarter. On an annualized basis, expectations are that the economy shrunk by -14.5% compared to -3.1%.
If expectations are met, the EU would be formally declared in recession.