The full extent of the impact of Covid-19 on the eurozone economy has been laid bare by figures showing the single currency zone shrank by a record 12.1% in the second quarter of 2020.
Amid growing fears that Europe’s tentative recovery is about to be affected by a second wave of the crisis, the European Union’s statistical arm, Eurostat, provided stark evidence of the drop in activity caused by the almost total lockdowns imposed by some countries in the spring.
Eurostat’s data revealed that the contraction in the second quarter – when combined with a smaller fall in the first three months of the year – had wiped out a decade and a half of expansion, returning the eurozone economy to its level in the mid-2000s. Italy – which has struggled to grow since adopting the single currency – has seen its GDP return to the levels of the mid-1990s.
In Spain, where concerns about a second wave are most acute, there has been the biggest drop in output in the second quarter, registering a decline in GDP of 18.5%. The fall, unmatched even during its civil war of the 1930s, followed a contraction of 5.2% in the first quarter and means that the eurozone’s fourth-biggest economy shrank by almost a quarter in the first half of 2020.
France, second in size only to Germany within the 19-nation single currency area, saw its GDP drop by 13.8%, while the next biggest economy, Italy, contracted by 12.4%. Germany, which reported its growth figures on Thursday, was the least bad performer of the eurozone’s “big four” economies with a GDP contraction of 10.1% in the second quarter. The best performing countries in the eurozone were in eastern Europe and the Baltic states.
Eurostat said that taken as a whole, the eurozone economy was 15% smaller than it had been a year earlier. The record-breaking drop in the April to June period of 2020 followed a fall of 3.6% in the first three months of the year and zero growth in the final quarter of 2019.
Andrew Kenningham, chief Europe economist at the consultancy firm Capital Economics, said: “There are few silver linings in the data published today, which confirm that eurozone GDP slumped just as much as feared in the second quarter and that inflation remained well below target. While parts of the economy have sprung back to life over the past couple of months, the damage already done combined with the current and potential future impact of the virus mean that the recovery will be painfully slow.”
Despite the unprecedented drop in GDP in the second quarter, the worst of the economic damage from Covid-19 was caused in April and activity started to pick up in May and June as lockdown restrictions were eased. But analysts warned that full recovery would be a long process.
“The hard part of this recovery is set to start about now,” said Bert Colijn, senior Eurozone economist at ING Bank.
“First of all, slightly higher trending new Covid-19 cases increase the risk of reversed reopenings, and we’re already seeing local signs of that. Secondly, from this point on, cautious increases in unemployment and bankruptcies and weak investment will bring to light more characteristics of a general economic slump. These factors are likely to drag on for some time, making a swift recovery to pre-corona levels of GDP out of the question.”