The EU saw its sharpest drop in GDP for more than a decade as coronavirus lockdowns brought Europe's economies to a standstill, new data shows.
GDP in the eurozone tumbled 3.1% in the first three months of 2020, compared with the same period a year earlier. The EU saw a fall of 2.6% over the same period. There are the biggest drops since 2009, according to Eurostat.
The biggest declines in GDP in Europe were in France, Italy, Spain and Slovakia.
Meanwhile, just four countries reported positive growth in the first quarter of 2020: Ireland, Bulgaria, Sweden and Romania.
“I wouldn’t have been able to predict that those four countries would be the ones which avoided a decline in GDP in the first quarter,” said Nicolas Véron, a senior fellow at the Peterson Institute for International Economics.
It’s not surprising there’s been variety in the economic outcomes in European countries given the “different timelines and strategies to the lockdown, and more importantly the contagion itself” he added.
Employment is also down, in the first decline since 2013, at 0.2% in the euro area, and 0.1% in the EU. Lithuania, Malta and Croatia saw the highest growth of employment, while Spain, Bulgaria, Portugal, Slovakia and Sweden have suffered the biggest drop.
It is difficult to give a country-specific explanation for these figures at this point, explains Véron, with the shock of the pandemic being asymmetrical.
A volatile situation
“In a way, it's less surprising that France, Spain and Italy would be severely affected, not just because of the intensity of the lockdown but also that of the contagion. The important thing is this is just the first quarter in a very volatile situation so there’s no reason to extrapolate these trends in the near future including for the second quarter.”
He adds that the actions taken by governments to mitigate economic damage has made it difficult to take many lessons from the data.
“The massive policy response basically everywhere in Europe has eliminated some of the worst-case scenarios in terms of economic downturn, but this has also blunted market signals.
“So there are many things that in normal times the market would give an indication of, and, at this point, we don’t have the indication because it’s hidden by the government’s intervention,” he said.
The EU has warned it is facing a “historic” downturn, with the prospect of at least a 7.4% contraction this year, significantly worse than the fall in 2009. This could be even worse with a second spike of infections and further economically damaging lockdown measures. How this plays out depends on the shape of the recovery, says Véron.
“It depends on three things,” he says.
“One is whether the virus returns or not. The second is the shape of the recovery and that will also depend on the rest of the world, the external sector. In some countries that’s a very big driver, and I think there’s also the question of the ability of the business sector to adapt to stress, change business models, find new resources to repay debt or whether the significant increase in corporate indebtedness will result in more bankruptcies.
"So I think in the near-term outlook if you take a horizon of a few quarters, one year, it’s still very unclear and there are probably a number of surprises to come.”