Eurozone crisis: Economy suffers devastating blow as disastrous recession nears | World | News


The eurozone is tumbling towards a disastrous recession (Image: Getty)

According to a preliminary flash estimate of the European Union’s statistics office Eurostat, economic output in the 19 countries sharing the euro in January-March was 3.8 percent smaller than in the previous three months – the sharpest quarterly decline since the time series started in 1995. Reuters had polled several economists who had forecast a 3.5 percent contraction in the eurozone economy. This follows marginal growth of 0.1 percent in the final three months of 2019.

This latest slump for economic output in the 19 countries sharing the euro will set alarm bells ringing in Brussels, as it is worse than during the financial crisis of 2008-09.

It is also the sharpest quarterly decline since the time series started in 1995.

The wider EU economy also suffered a huge blow, with GDP shrinking 3.3 percent year-on-year during the three-month period.

Financial analysts have painted a bleak picture for the eurozone, warning there could be much worse to come as coronavirus lockdowns continue to be enforced throughout Europe.

Carsten Brzeski, Chief Economist ING Germany, tweeted: “In case the #ECB needed any more bad news for its briefing notes, #Eurozone GDP fell by 3.8% QoQ in the first quarter.

“And this was only with roughly two weeks of lockdown and supply chain disruptions.

“Brace yourself for worse to happen.”

The coronavirus pandemic that has swept across the continet has seen most European governments impose strict lockdown measures on households and businesses since last month.

Europe’s economy is expected to fall at a much faster rate over the coming weeks and months, with the pandemic expected to trigger the worst recession in the global economy since the Great Recession of the 1930s.

The European Central Bank (ECB) is now under huge pressure and later today will announce the next moves to prop up the ailing eureozone economy that forecasters have warned could shrink by up to a tenth this year.

But Sophia Oertmann, an analyst at DZ Bank, said: “It is more likely that the ECB could sit on its hands in order to keep up the pressure on European governments to adopt further aid packages or financial-solidarity measures.”

Last week, ECB president Christine Lagarde warned EU leaders eurozone GDP could plunge by as much as 15 percent this year.

The ECB has already deployed 125billion euros to buy assets over the past months but is also fighting to lower borrowing costs of the bloc’s lowest rated governments.

This has increased fears the banks 1.1trillion euro cash pile could be gone by mid-Autumn.

The contraction of the eurozone is the latest in a string of blows for the EU already today, after figures showed the economies in France and Spain have also plunged at alarming rates. 

France collapsed into recession and suffered its fastest contraction since World War II as the coronavirus lockdown blew a massive hole in the EU’s second largest economy.

The INSEE official statistics agency said French gross domestic product (GDP) shrank by a huge 5.8 percent in the first quarter compared to the final three months of 2019.

This follows a slight slump of 0.1 percent during that period, but marks the second consecutive quarterly contraction, meaning France is technically now in recession.

The contraction in the first three months of this year was the biggest quarterly slump since records began in 1949.

It surpassed the record of 5.3 percent in the second quarter of 1968, when France was ravaged by civil unrest, mass student protests and general strikes.

The INSEEE data shows consumer spending – predominantly the driver for the French economy – collapsed 6.1 percent in the first quarter compared to the previous three months, while investment plummeted by a massive 11.4 percent.

Exports and imports fells 6.5 percent and 5.9 percent respectively during the three month period.

Spain’s GDP also shrank 5.2 percent in the first three months of this year, according to preliminary estimates from its Office for National Statistics (INE) – the largest fall since the series began in 1995.

Earlier this week, Germany forecast its economy – the largest in the EU at £3.2 trillion – would contract by 6.3 percent over the whole year, before rebounding in 2021.

This is a breaking story. More to follow.

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