Euro Area: GDP shrinks less than expected in Q4

Euro Area GDP Q4 2020

Euro Area: GDP shrinks less than expected in Q4

The Euro area economy shrank a seasonally-adjusted 0.7% from the previous quarter in Q4, contrasting Q3’s record 12.4% rebound. The economy therefore beat market expectations of a 1.0% contraction. Compared with the same quarter of the previous year, seasonally-adjusted GDP fell 5.1% in Q4—a sharper drop than Q3’s 4.3% decline. Taking 2020 as a whole, GDP plunged 6.8%, marking the worst result since the current series began in 1995 and contrasting 2019’s 1.3% expansion.

The quarterly decrease came as Covid-19 containment measures were tightened throughout the currency union, weighing on business activity, especially in the services sector, and on household spending. In terms of individual countries, Italy’s economy shrank 2.0% over the previous quarter and France’s GDP dropped 1.3%. Meanwhile, Germany’s economy expanded a modest 0.1%, while Spain’s GDP grew 0.4%.

Looking ahead, the economy should recover some of last year’s lost output in 2021, supported by EU funding, ultra-loose monetary and fiscal stances, the gradual lifting of restrictions and strengthening external demand as the global economy reopens. That said, further flare-ups of the virus, global trade tensions, rising levels of public debt and fragilities within those banking systems which are burdened by a high stock of bad loans pose downside risks.

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

“Compared to the first wave, when supply chain problems and lockdowns globally caused a huge drop in external demand, the second wave is quite different. Outside of the eurozone, most economies have remained largely open and 4Q benefited from strong demand from countries like China, and from a stockpiling effect in the UK ahead of the end of the transition period. That has resulted in rather favourable monthly export figures and boosted industrial production. This leads to the conclusion that while quite a few service sectors have seen output plummet over the course of the quarter, a strong manufacturing contribution has limited the overall GDP decline. As lockdowns have been extended into 1Q, it is likely that another quarter of falling GDP will follow.”

More comprehensive results for the fourth quarter are scheduled to be released on 16 February.

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