Euro Area: GDP rebounds more than expected on easing lockdowns in Q3

Euro Area GDP Q3 2020

Euro Area: GDP rebounds more than expected on easing lockdowns in Q3

The Euro area economy bounced back strongly in Q3, with GDP surging a seasonally-adjusted 12.7% from the previous quarter, contrasting Q2’s record 11.8% plunge. The economy therefore grew at the fastest pace since the series began in 1995, beating market expectations of a 9.4% expansion. Compared with the same quarter of the previous year, seasonally-adjusted GDP contracted 4.3% in Q3—less than a third of Q2’s 14.8% freefall.

The historic quarterly rebound came as Covid-19-related containment measures were eased throughout the currency union, allowing businesses to resume activity and households to shop and go on holiday. In terms of individual countries, France’s economy soared 18.2% over the previous quarter; and Spain’s GDP increased 16.7%—although the country’s GDP was the worst performer in the Euro area in Q2. Italy’s economy jumped 16.1% and beat market expectations of a 11.0%–12.0% expansion, while Germany’s GDP grew 8.2%.

Looking ahead, the economy should recover most of its lost output next year, supported by EU funding, ultra-loose monetary and fiscal stances, and strengthening external demand as the global economy reopens. That said, further restrictions, global trade tensions, a no-deal Brexit and rising levels of public debt pose downside risks. In addition, the ongoing Covid-19 outbreak could exacerbate the fragilities within those banking systems which are burdened by a high stock of bad loans, and could also strain debt sustainability in countries with heavy public debt-to-GDP ratios.

As highlighted by Bert Colijn, senior Eurozone economist at ING:

“[With] levels of output much below pre-Covid-19 levels and with new restrictive measures on the economy, concerns about second-round effects are growing. This means that the focus will now turn to how adequate fiscal responses will be to counter the long-term effects of new partial lockdowns.”

More comprehensive results for the third quarter are scheduled to be released on 13 November and 8 December.

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