Page 15 - economic report 2020

OFFICIAL INTEREST RATES IN THE USA AND EUROZONE - As %

2.75 Chart 1.4
2.50
2.25
2.00
1.75
1.50
1.25
1.00
0.75
0.50
0.25
0.00
2017 2018 2019 2020 2021
USA Eurozone
Source: Federal Reserve and ECB.

The Eurozone public deficit shot excludes volatile components such as energy
up to 7.2% of GDP due to and unprocessed food) reached 0.9%, below
increased expenditure. the targets set by the ECB’s monetary policy.
All Eurozone economies saw annual inflation
rates close to zero, as in the case of France
(0.5%) or Germany (0.4%), or even slightly negative rates, as occurred in Spain (-0.3%), Italy (-0.1%)
or Portugal (-0.1%).

Public finance was seriously affected by the health emergency. For the Eurozone as a whole, the 13
public deficit went from 0.5% of GDP in 2019 to 7.2% in 2020. This sudden rise in the deficit is
the result of a major increase in the spending-to-GDP ratio (going from 47% to 54%), while the
percentage of revenue remained stable at about 46% of GDP. Once again, it was the countries
with the highest public deficits (above 9%) that saw their economies more severely impacted by
the pandemic (Spain, Italy, Greece and France, among others).

As for monetary policy, the central banks initiated a broad range of measures to halt the
economic impact of the crisis caused by COVID-19. On the one hand, the banks that had leeway
cut interest rates, such as the Fed, which
lowered them from 1.5%-1.75% in January to Monetary policy becomes
0.0-0.25% in March, and the Bank of England, expansionary in all countries to
which also had leeway to lower interest rates.
In contrast, the ECB and the Bank of Japan combat the effects of the pandemic.
kept them stable because they were already
at historic lows (0%). On the other hand, all the central banks enhanced measures to ensure
abundant liquidity and favourable credit terms.

The falling trend in the euro ends as The pandemic reversed the trend for the The external environment of the Andorran economy | I. The international economy
it appreciates against the dollar. euro to depreciate against the dollar, which
occurred in 2018 and 2019. Due to the Fed
cutting interest rates in the first quarter of
2020, the dollar lost value as a safe haven currency. Added to this was the positive evaluation by
the markets of the rapid, decisive action by the European economic and monetary authorities.
All in all, this meant that the euro began to clearly appreciate from June onwards and, with the
exception of the period from September to November, maintained this trend until December,
when it reached a high of $1.22/€ - 9.5% above the price in December 2019 ($1.11/€).