Euro Area: Third estimate confirms GDP swung to contraction in Q4 amid tighter restrictions
According to a third estimate, the Eurozone economy swung back to contraction in Q4 2020, with GDP dropping a seasonally-adjusted 0.7% from the previous quarter (previously reported: -0.6% s.a. qoq). This contrasted Q3’s record 12.5% jump, which had marked the sharpest expansion since the series began in 1995. Compared with the same quarter in 2019, seasonally-adjusted GDP fell 4.9% in Q4 (previously reported: -5.0% year-on-year). The contraction was sharper than Q3’s 4.2% fall. 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 downturn came as Covid-19-related containment measures were tightened throughout the single-currency union, restraining business activity and especially household spending. Private consumption fell 3.0% over the previous quarter in Q4 (Q3: +14.1% s.a. qoq), amid downbeat consumer sentiment and an ailing labor market. Moreover, growth in fixed investment decelerated to 1.6% (Q3: +13.9% s.a. qoq), while public consumption growth also cooled (Q4: +0.4% s.a. qoq; Q3: +4.6% s.a. qoq). On the other hand, restocking added 0.6 percentage points to growth, as companies likely opted to replenish their warehouses amid vaccines hopes and fears of supply disruptions.
Meanwhile, the external sector subtracted 0.1 percentage points from growth in Q4 as exports increased 3.5% (Q3: +16.7% s.a. qoq), while import growth softened to a lesser extent (Q4: +4.1% s.a. qoq; Q3: +11.8% s.a. qoq).
In terms of specific countries, the sharpest fall was recorded in Italy (Q4: -1.9% s.a. qoq), followed by France (Q4: -1.4% s.a. qoq). Meanwhile, the Spanish economy expanded 0.4% in seasonally-adjusted quarter-on-quarter terms and Germany’s economy expanded 0.3%.
GDP should recover some of last year’s losses in 2021. Domestic demand will bounce back, underpinned by reopening economies, strong EU funding, and expansionary monetary and fiscal policies, while the gradual lifting of global restrictions will boost the external sector. However, rising public debts, banks’ bad loans and a sluggish vaccine rollout cloud the outlook.