Eurozone economy shrinks at record rate

The eurozone economy shrank at its sharpest rate on record in the first quarter of the year, with the continent set to enter a deep recession triggered by the coronavirus lockdown.

Eurostat data published yesterday showed that eurozone GDP shrank by 3.8% in the first quarter of 2020 compared to the final quarter of last year. The contraction is worse than that experienced by the US over the same period and deeper than the financial crisis over a decade ago. Market Watch says it means “three years of the eurozone’s economic activity have been wiped away, and it is likely going to get worse”.

“The collapse in economic activity was most acute in countries hit hardest by the disease,” says CNN.

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In France, GDP declined by 5.8% in the first three months of the year, Spain saw a contraction of 5.1% while Italy’s economy shrank by 4.7%. All three countries have recorded more than 20,000 coronavirus deaths making them among the worst affected countries in the world.

There was some good news for Europe’s largest economy. Germany has not yet published its quarterly estimates but new figures for the German labour market showed the number of people out of work rising by 373,000 in April.

“However, the full impact is damped by the country's system of financial help to people put onto shorter working hours, known as Kurzarbeit,” says the BBC, without which these “bad” labour market figures would have been “disastrous” Claus Vistesen of Pantheon Macroeconomics told the broadcaster.

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Europe's economy “is expected to fall even further in the second quarter, given that most European governments only started to impose a lockdown on households and businesses in early March” says the Financial Times, which adds the pandemic “is expected to trigger the worst recession in the global economy since the Great Depression of the 1930s”.

European Central Bank (ECB) President Christine Lagarde has said that a sharp downturn in eurozone economic activity in April “suggests that the impact [of the pandemic] is likely to be even more severe in the second quarter”.

She warned that eurozone economic growth could fall between 5% and 12% this year, “depending crucially on the duration of the containment measures and the success of policies to mitigate the economic consequences for businesses and workers”.

The ECB has already stepped up with a commitment to buy more than €1 trillion worth of bonds and other assets this year, “but the dire first quarter data, and the prospect of worse to come in the April to June period, will pile pressure on EU governments to finalize plans for a trillion-euro recovery fund to rebuild their economies,” says CNN.