Europe Suffers Record Economic Plunge

People wearing face masks stay at the beach in Barbate, Cadiz province, south of Spain, last Saturday. (AP Photo/Emilio Morenatti)

(CN) — Europe’s 19-country Eurozone economy suffered a record 12.1% drop in economic activity during the months when most of the continent was shut down to stop the spread of the novel coronavirus. 

The record plunge in economic activity in Europe mirrors the staggering 33% drop in gross domestic product for the second quarter of this year announced a day earlier in the United States. Compared with the first quarter, the U.S. economy shrank by 9.5%, slightly better than the EU.

Friday’s data for Europe comes amid growing concerns over a rise in new infections across Europe since nations lifted lockdowns and eased restrictions. To stem the virus’ spread, Europe is seeing new containment measures, such as bans on large gatherings and mandatory masks, and targeted lockdowns come into effect — measures that will slow Europe’s economic recovery.

Among the 19 countries using the euro currency, Spain’s economy was hit the hardest between April and June with an 18.5% decline in gross domestic product compared with the first quarter, according to preliminary data released Friday. The next worst battered were Portugal, France and Italy, with their economies contracting by 14.1%, 13.8% and 12.4%, respectively. 

Southern countries were slammed by the pandemic earlier and harder than others and they also rely heavily on tourism, which was shut down as travel was largely banned. Europe suffered record declines across the map, including in Germany, Europe’s largest economy. Germany saw its economic output shrink by 10.1%, its steepest quarterly decline since the end of World War II. This year’s economic shock is greater than the downturn in Europe after the 2008 financial meltdown. The previous worst record for Germany was in the second quarter of 2009, when its economy shrank by 7.9%.

The economy of the EU as whole, including eight countries not using the euro, shrank by 11.9%. When compared with 2019, the economic declines were even harsher, with the Eurozone contracting by 15% and the EU as a whole by 14.4%. (The Eurozone is the monetary union of the 19 nations of the 27 European Union states that use the euro currency.)

The EU said these were by far the sharpest declines since data for the EU began to be tracked in 1995.

“It is a shocking drop, but completely understandable, as the economy was shut for a considerable period during the quarter,” said Bert Colijn, a senior economist for the eurozone at the Frankfurt-based ING bank, in a briefing note

He said this recession is unlike previous ones because it was caused by the lockdowns rather than purely economic factors. He said the economy is picking up as restrictions are lifted, but he worried about Spain’s steep decline and the rise in new infections.

“The hard part of this recovery is set to start about now,” Colijn said. “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.”

The newest country to renew a clampdown on movement and large gatherings was the United Kingdom which announced new restrictions and precautions on Thursday as infections swell. 

Colijn said Europe will see a rise in unemployment, bankruptcies and weak investment, all of which will slow the recovery.

“These factors are likely to drag on for some time, making a swift recovery to pre-corona levels of GDP out of the question,” he said.

The EU forecasts the Eurozone economy will shrink by 8.7% for 2020 and by 8.3% for the entire EU bloc.

To counter the recession, EU nations have opened their wallets and handed out loans to businesses, set up stimulus programs, ramped up unemployment payments and paid workers’ salaries while they are furloughed. In addition, the European Central Bank is pumping about $1.6 trillion in newly printed money into the economy to keep borrowing costs low and EU leaders have agreed to a $887 billion recovery fund backed by common borrowing to help the economy from 2021. 

Courthouse News reporter Cain Burdeau is based in the European Union.

%d bloggers like this: