The European statistics agency Eurostat published its first estimate of the general economic development in the euro zone in the second quarter. As expected, the corona crisis caused a historic slump in real economic output. The price and seasonally adjusted gross domestic product literally fell by -12.1% compared to the previous quarter, the annual rate dropped to -15.0% Y / Y. Today’s numbers are more or less in line with expectations after some countries released catastrophic GDP figures yesterday. Germany (-10.1% Q / Q) and Austria (-10.7% Q / Q) got through the crisis even better than the rest of Europe. The stock markets started the day somewhat friendlier after the catastrophic economic data had to be digested yesterday.
In the second quarter, GDP in the monetary union fell more than ever before. Based on the country data published so far, it can be said that all economies were hit more or less hard. However, the economic burdens in spring tend to be particularly high in the member countries that experienced severe pandemic events. This applies particularly to Italy (-12.4% Q / Q), France (-13.8%) and Spain (-18.5%). However, it would certainly be too easy to attribute this to the extent of containment measures administered by the state; after all, when there is a particularly high risk of infection, people also voluntarily adapt their behavior.
The good news is that practically all countries in the eurozone passed their economic trough in the course of the second quarter and started a recovery phase in May and June. Falling infection numbers had gradually allowed more economic activity. We therefore expect a strong recovery of around 7% Q / Q in the third quarter.
For 2020 as a whole, however, we are sticking to our forecast that GDP in the eurozone will shrink by almost 9% compared to the previous year. This is by far the worst post-war recession for Europe, a century recession. To answer the question of when the last economic activity was so low in a quarter, you have to go back a good 15 years. Even if the pandemic is favorable, it will take a good two years before the pre-crisis level is reached again. Given the depth of the crisis, the EU financial package is certainly not too large. The pressure on the ECB will soon increase again to reload. We expect the PEPP purchase program to expand further, and interest rates will remain extremely low. The corona crisis will reverberate economically and the European economy will need support longer than optimists had hoped for recently.
Conclusion: The economy of the eurozone was hit in the spring by the full impact of the corona crisis. In the second quarter, real gross domestic product shrank by -12.1% compared to the previous quarter. The pandemic has triggered a recession of the century, which will continue to have an impact for years to come, even if the infection continues to do well. For 2020 as a whole, we expect real economic output to plummet by almost 9% in the previous year. But there is also good news: Monetary and fiscal policy have reacted very cleverly and courageously, thus preventing mistakes such as after the great depression in the early 1930s. And when the pandemic is under control, more economic activity suddenly takes place. This can currently be observed and will lead to a strong recovery in the current quarter. At the same time, it is a reminder that an economic loss of control over the infection process must be avoided urgently.
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