Eurozone economy shrinks at record rate, only tip of iceberg

brussels — The eurozone economy contracted at a record rate in the first three months of the year and inflation slowed sharply as much economic activity in March came to a halt because of the Covid-19 pandemic, data showed on Thursday — and conomists expect even worse numbers for the second quarter.

According to a preliminary flash estimate from the European Union’s statistics office Eurostat, economic output in the 19 countries sharing the euro currency in January-March was 3.8 per cent smaller than in the previous three months — the sharpest quarterly decline since the time series started in 1995.

Economists polled by Reuters had expected a 3.5 per cent contraction after a 0.1 per cent quarterly growth in the last three months of 2019.

Year-on-year the GDP contraction was 3.3 per cent in the first quarter. However, coronavirus-related lockdowns were only in place for two to three weeks of the quarter.

“This points to an much bigger fall in activity in Q2, when the full lockdowns will be in effect for almost half the time and will then be only partially lifted,” said Andrew Kenningham, economist at Capital Economics.

Economists noted that in several countries that reported first quarter GDP numbers, the depth of the recession was linked to the severity of national lockdowns. France’s GDP fell 5.8 per cent, Spain’s by 5.2 per cent, Belgium’s by 3.9 per cent and Austria’s by 2.5 per cent.

“France and Spain have been among the most strict in terms of lockdowns and hence their economies have suffered more. This would suggest that a country like Germany has experienced a smaller-than-average contraction,” said Bert Colijn, economist at ING.

Eurostat also said consumer prices in the eurozone grew 0.3 per cent month-on-month in April for a 0.4 per cent year-on-year increase, slowing from 0.7 per cent year-on-year in March.

But the slowdown of inflation was smaller than expected by economists, who on average forecast a deceleration to 0.1% yearon-year in Aril, according t per cent a Reuters poll.

The biggest drag on the overall index came from energy prices, which dropped 9.6 per cent yearon-year.

Without the volatile energy and unprocessed food components — what the European Central Bank calls core inflation — prices grew 0.7 per cent on the month for a 1.1 per cent year-on-year increase. In March this measures was an increase of 1.2 per cent. —