Euro Area: Lockdowns plunge Eurozone economy to series low in Q1
May 15, 2020
A second estimate confirmed that the Eurozone economy contracted sharply in the first quarter of this year, after marginally expanding in Q4 2019. GDP dived a seasonally-adjusted 3.8% in Q1 from the previous quarter, contrasting Q4’s 0.1% uptick and thus logging the sharpest contraction since the series began in 1995. Compared with the same quarter of the previous year, seasonally-adjusted GDP plunged 3.2% in Q1, swinging from Q4’s 1.0% increase and marking the worst reading since the third quarter of 2009.
The contraction came on the back of frozen business and household activity in the last two weeks of March due to measures adopted by governments to contain the pandemic. Moreover, prolonged weakness in the industrial sector, political uncertainty and weak demand from key trading partners ahead of the outbreak also contributed to the feeble expansion in the fourth quarter. Plunging business confidence and PMI readings in March suggest investment activity was especially hard hit, while diving consumer confidence and a slump in employed people in the same month bode ill for consumption.
Additional data released by national statistical institutes across the Eurozone was consistent with the overall picture, although significant differences emerged among countries. France, Italy and Spain all contracted sharply in the first quarter. Meanwhile, Germany’s contraction was considerably less pronounced, as were those in Austria and the Netherlands.
Commenting on the release, Bert Colijn, senior Eurozone economist at ING, stated:
“While the largest quarterly drop in output ever recorded will be followed by an even deeper drop in 2Q, the recovery seems to have already started as lockdowns are now gradually being lifted. This is very much a recession on steroids. Activity data based on Google location tracking suggests that the worst is now behind us and that visits to workplaces, retail and grocery stores have increased again. The reopening will give a significant boost to growth towards the end of the quarter – bar any return of restrictive measures – but that will be dominated by the negative April impact. Do expect a sharp bounce back in 3Q though.”
GDP is projected to plunge this year, with the downturn largely concentrated in Q2. Lockdown measures, which are being gradually lifted, will hit consumer spending, while vanishing European demand and disrupted supply chains will weigh on the industrial sector. The severity and length of the pandemic remains the key risk to the outlook.