Euro Area: Second estimate confirms record-breaking collapse of Eurozone economy in Q2

Euro Area GDP Q2 2020

Euro Area: Second estimate confirms record-breaking collapse of Eurozone economy in Q2

A second estimate confirmed that the Eurozone economy collapsed at a record-breaking pace in the second quarter as Covid-19 related lockdowns shut down businesses and hammered the jobs market. In Q2, GDP dived a seasonally-adjusted 12.1% from the previous quarter, following Q1’s 3.6% drop and thus contracting at the sharpest pace since the series began in 1995. Compared with the same quarter of the previous year, seasonally-adjusted GDP plunged 15.0% in Q2, following Q1’s 3.1% decline and also marking the worst reading on record.

The unprecedented contraction came amid business and household activity grinding to a halt as the full effect of lockdowns adopted to contain the pandemic was felt. In terms of individual countries, Spain’s economy collapsed 18.5% over the previous quarter, France’s GDP tumbled 13.8%, Italy’s already-ailing economy slumped 12.4% and Germany’s GDP contracted 10.1%.

This year, economic activity is set to plunge as the pandemic disrupts supply chains, hammers the tourism industry and suppresses both domestic and foreign demand. In addition, solvency problems among businesses and households experiencing repayment difficulties could exacerbate fragilities within those banking systems which are burdened by a high stock of sour loans, and could also strain debt sustainability in countries with hefty public debt-to-GDP ratios. That said, the recently-approved EU recovery fund should help to ameliorate risks of financial turmoil.

Commenting on what lies ahead, analysists at Commerzbank noted:

“The economic recovery in the second half of the year will be largely determined by the further fight against the spread of the pandemic. In recent weeks, infection rates have risen sharply in many euro area countries. A large, second wave of viruses would definitely slow down the recovery of the euro economy. We assume, however, that this time the countries would resort to targeted measures and that there would not be another comprehensive standstill.”

More comprehensive results for the second quarter are scheduled for release on 9 September.

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