Consumption in Eurozone

Eurozone - Consumption

Coronavirus crisis strikes unprecedented blow to Eurozone economy in Q1

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, according to a preliminary estimate released by Eurostat. Compared with the same quarter of the previous year, seasonally-adjusted GDP plunged 3.3% in Q1, swinging from Q4’s 1.0% increase and marking the worst reading since the third quarter of 2009.

The contraction in the Eurozone economy 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. Data from national statistical institutes showed that France’s economy shrank 5.8% over the previous quarter, while Spain’s economy contracted 5.2% and Italy’s already-ailing economy tumbled 4.7% in quarter-on-quarter terms. Meanwhile, softer but still significant contractions were recorded in Belgium and Austria.

Looking ahead, economic activity is set to be hammered this year as the pandemic disrupts supply chains, hits tourist flows and dampens both domestic and external demand. In addition, the outbreak could exacerbate the fragilities of 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, Eurozone senior economist at ING:

“This historic drop in GDP will surely be followed by an even poorer quarter given that most of the lockdown has taken place in April. That said, a cautious start to the recovery will happen in the same quarter as lockdowns across the eurozone gradually get lifted, truly making this a whirlwind of a recession.”

More comprehensive results for the first quarter are scheduled to be released on 15 May, 9 June and 20 July.

FocusEconomics Consensus Forecast panelists are still assessing the latest developments.