The eurozone’s economy shrank by the fastest rate on record in the first quarter of 2020 as measures to contain the coronavirus pandemic froze business and household activity, according to figures published on Thursday.
The gross domestic product of the eurozone fell by 3.8 per cent in the first quarter compared with the previous quarter, preliminary estimates from Eurostat found. This is the largest drop since the series began in 1995, and larger than the worst of the financial crisis.
The contraction in the eurozone was worse than that experienced by the US, where the economy contracted by 4.8 per cent at an annualised rate, according to data published on Wednesday.
The grim economic news is likely to add to pressure on the European Central Bank to step up its measures to shield the eurozone economy from the full force of the pandemic when it announces its latest monetary policy decision on Thursday afternoon. ECB president Christine Lagarde warned EU leaders last week that eurozone GDP could fall 15 per cent this year.
France and Spain — two of the bloc’s biggest economies — both experienced sharp contractions in GDP in the first three months of 2020, figures published separately on Thursday showed.
France’s GDP dropped 5.8 per cent in the first quarter compared with the previous quarter, according to preliminary estimates from the country’s Office for National Statistics (Insee), the biggest fall since records began in 1949.
Meanwhile, Spain’s gross domestic output shrank 5.2 per cent in the same period, according to preliminary estimates from its Office for National Statistics (INE). This is the largest fall since the series began in 1995.
Separate data from Germany’s Federal Employment Agency showed that more than 10m German workers have been registered to have part of their wages subsidised by the state while they are idled by their employers in response to the coronavirus crisis. Almost a quarter of all German workers have been sent home or put on partial hours during the pandemic.
Given that most European governments only started to impose a lockdown on households and businesses in March, the region’s economy is expected to fall even further in the second quarter. The pandemic is expected to trigger the worst recession in the global economy since the Great Depression of the 1930s.
Germany this week forecast that over the whole year its economy would contract by 6.3 per cent, before rebounding next year. On Thursday, new data showed that German retail sales fell at the fastest pace in more than a decade despite strong growth in online and food purchases, while the number of airline passengers at German airports fell 63 per cent in March.
The economic contraction in the first quarter “will pale in comparison with the complete collapse that will surely be recorded in Q2”, said Jessica Hinds, European economist at Capital Economics, as restrictions were mostly introduced only from mid-March.
Earlier this week, Edouard Philippe, prime minister of France, announced plans to reopen parts of the economy from May 11 to avoid the risk of economic “collapse”.
Meanwhile, in Italy the number of people looking for work dropped 11 per cent in March compared with the previous month. The proportion of people outside Italy's labour force rose to 35.7 per cent in March from 34.9 per cent in the previous month, and the share of people in employment declined to 58.8 per cent in March from a peak of 59.2 in June.
Italy's unemployment rate fell from 9.3 per cent in February to 8.4 per cent in March, as the number of unemployed people dropped by 267,000 to 2.13m over the month.
The drop in the French economy was driven by an “unprecedented” 6.1 per cent contraction in household consumption and an 11.8 per cent fall in investment, Insee said. “GDP’s negative evolution in Q1 2020 is primarily linked to the shutdown of ‘non-essential’ activities in the context of the implementation of the lockdown since mid-March,” it added.
Florian Hense, an economist at Berenberg, said the first-quarter shrinkage in France’s economy had wiped out four years of growth, adding that the country’s “more stringent government measures should better contain the Covid-19 pandemic, but they also hit economic activity harder”.
France contracted by 0.1 per cent in the final quarter of 2019, which means the French economy has now entered a recession — defined as two consecutive quarters of negative growth.
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In Spain, the record first-quarter economic contraction ends more than six years of uninterrupted growth, most of which was well above the pace of the eurozone average. The previous largest quarterly fall in the Spanish economy was in the financial crisis when it shrank 2.6 per cent in early 2009.
Spain has announced plans to start lifting its heavy restrictions on society in May. But because a larger proportion of its economy relies on tourism, which has been severely hit, the country’s economy is thought to be more exposed to the Covid-19 pandemic.
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2020-04-30 10:50:47Z
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