Euro Area Economic Forecast

Economic Snapshot for the Euro Area

May 6, 2020

Eurozone economic outlooks darkens considerably

Preliminary figures showed the economy suffered its worst contraction on record in the first quarter. The downturn came on the back of frozen business and household activity in the better part of March due to measures adopted by governments to contain the spread of the pandemic. According to data from national statistical institutes, Covid-19 wreaked havoc on both domestic and external demand in France, Italy and Spain, while contractions in smaller Eurozone economies were sizeable but less severe. Prospects for the second quarter are even bleaker, due to protracted lockdown measures, with a bigger blow to activity expected, as suggested by collapsing consumer and business confidence and a diving PMI reading in April. To cushion the economic impact of the coronavirus crisis, on 9 April Euro area ministers rolled out an emergency package worth EUR 540 billion; nonetheless, they remained deeply divided on post-crisis stimulus.

 

 

The pandemic will hammer the economy this year. Investment activity will tumble; household spending will plummet amid a surge in unemployment; and external demand will shrivel, also due to a freeze in tourism flows. Moreover, it will lead to a spike in banks’ bad loans and pose risks to debt sustainability in countries with strained public finances.

The economy is seen contracting 7.0% in 2020, which is down 2.9 percentage points from last month’s forecast. In 2021, GDP is seen increasing 5.1%.


 

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