Eurozone economy shrank by record 12.1% in second quarter

Andrew Cummings
August 2, 2020

France's economy was already shrinking in the last quarter of 2019, before the coronavirus pandemic hit with full force.

However, Spain, which also released fresh data on Friday, suffered an even bigger blow from the pandemic, with its GDP nosediving by a staggering 18.5 percent over the same period. Italy and Portugal were also hard hit.

The plunge in GDP was driven largely by the drop in its largest component consumer spending, which fell 34.6% annualised, according to the data, which was the first estimate for the second quarter. Earlier this month, European Union leaders approved a €750bn (£677bn, $890bn) coronavirus recovery package in Brussels, of which around half will be issued as grants to struggling member states.

Adding to the economic gloom was a disappointing jobless claims report, also released Thursday, which showed that initial weekly unemployment filings rose for the second straight week after steadily falling from its March peak of nearly 7 million.

But personal income got a boost of $1.4 trillion in the quarter from the government emergency spending measures that provided payroll funds for businesses and direct unemployment payments to workers.

Economists say the downturn was concentrated in the months of April and May when lockdowns were most severe.

INSEE said earlier this year it expected the economy to rebound by 19% in the third quarter and a further 3% in the fourth quarter, with activity 1% to 6% below pre-crisis levels by December.

Spain, which relies heavily on tourism, expressed its frustration at the United Kingdom this week, after the British government introduced a 14-day quarantine on people returning from the popular summer vacation destination.

In the first quarter, growth had fallen by 5.2 percent, the Institute of National Statistics said (INE). Meanwhile, the lowest decline was recorded in Lithuania (-5.1%).

The French Finance minister Bruno Le Maire said that the figures were not as bad as they were feared and that measures to support the economy should continue.

France is faring worse than Germany, Europe´s largest economy, which on Thursday reported a 10.1% plunge in GDP during the April-June period as its exports and business investment collapsed.

The devastating economic impact of the pandemic - which has wiped out years of GDP growth - has been seen across Europe.

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