The coronavirus pandemic has plunged the eurozone economy into a historic recession with Spain suffering the biggest hit, figures published on Friday showed. Eurozone gross domestic product fell 12.1 per cent between the first and second quarters of 2020, the sharpest drop in 25 years of records, following a decline of 3.6 per cent in the first quarter. The Spanish economy shrank by 18.5 per cent in the three months to June, taking its total contraction in the first six months of this year to 22 per cent and wiping out all the gains made in the seven years since its last recession.
“It’s the kind of drop one would see in a war,” said José Ignacio Conde Ruiz, a professor of economics at Madrid’s Complutense University. “The only sector that grew was agriculture.” France reported a quarter on quarter fall of 13.8 per cent for the second quarter, its biggest contraction since the second world war, taking the total reduction in output since the start of the year to 19 per cent.
Italy’s economy shrank by 12.4 per cent quarter on quarter, the steepest contraction in nearly four decades. The country is mired in its fourth recession in just over a decade and its economy was already shrinking before the pandemic hit. The second-quarter contraction took output back to levels last seen in the early 1990s. By contrast Germany has fared better since the start of the pandemic, recording a 12 per cent contraction so far in 2020, according to figures published on Thursday.
“The eurozone is not only experiencing a huge shock but also an asymmetric one, with the most vulnerable countries . . . badly hit,” said Nicola Nobile, at the consultancy Oxford Economics, noting that the bloc’s per capita GDP was back at levels not seen since the early 2000s. Spain’s exceptionally deep recession reflects the severity and length of its initial lockdown. The country now also faces the steepest rise in new coronavirus cases, threatening the reopening of its crucial tourism sector. Jessica Hinds at the consultancy Capital Economics noted that Spain’s government was “hampered by its debt burden and political weakness” and so had been less able to support the economy than other European countries.
Economists warn that the recovery across the eurozone is likely to be both slow and uneven: although economies have largely reopened, recent increases in new virus cases threaten to impose a rolling series of local lockdowns, and after the initial rebound, consumer demand seems unlikely to return to pre-pandemic levels soon. Eurozone inflation rose to 0.4 per cent year on year in July, slightly stronger than expected, according to figures published on Friday, but that still leaves price growth far below the European Central Bank’s target, with deflation reported in several countries, including Spain and Ireland.
Because of the importance of tourism in some economies “the divergence we see may be even more pronounced in quarter three”, said Florian Hense, economist at Berenberg. While most supply has now been “switched on”, the recovery in consumer demand might already be flagging, he added.
Growth in German retail sales petered out in July after the previous month’s surprising strength, figures showed on Friday. Ms Hinds said that although France seemed to have returned to “normal” faster than other countries, “the consumer recovery is already petering out and the French government has ruled out a VAT cut”, suggesting that activity was likely to remain below pre-virus levels for several years.
“The hard part of this recovery is set to start about now,” said Bert Colijn, economist at ING. As well as the risk of new outbreaks forcing renewed shutdowns, he said that from this point on, rising unemployment and bankruptcies, along with weak investment, “will bring to light more characteristics of a general economic slump . . . making a swift recovery to pre-corona levels of GDP out of the question”.