The eurozone’s economy slid into recession, shrinking by a record 12.1% during the second quarter following a first-quarter contraction of 3.6%. Between April and June, France’s and Italy’s economies shrank by 13.8% and 12.4% respectively, while Spain was hard-hit, posting a second-quarter contraction of 18.5% following a first-quarter decline of 5.2%.
- Germany’s economy shrank by 10.1% during Q2
- The EC expects the region to suffer a “deep” recession
- The ECB warned of continuing uncertainty
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The eurozone’s economy slid into recession, shrinking by a record 12.1% during the second quarter following a first-quarter contraction of 3.6%. Between April and June, France’s and Italy’s economies shrank by 13.8% and 12.4% respectively, while Spain was hard-hit, posting a second-quarter contraction of 18.5% following a first-quarter decline of 5.2%. The World Health Organisation (WHO) reported that over 285,000 cases of Covid-19 had been diagnosed in Spain by the end of July, with more than 28,000 deaths recorded.
Germany’s economy is recovering “step by step”
Germany’s economy also slipped into recession during the second quarter of 2020 as the country suffered a “massive slump” in exports and imports, and also in household spending and investment in machinery and equipment. Germany’s economy contracted by 10.1% during the second quarter, having previously shrunk by 2%. Nevertheless, Germany’s economy is recovering “step by step”, according to the Ifo Institute’s Business Climate Index, which reported that sentiment amongst German companies continued to improve in July. Companies were “notably more satisfied” with their current business situation and are “carefully optimistic” towards coming months. The Dax Index ended July broadly unchanged, while the CAC 40 Index fell by 3.1%.
Although activity in the eurozone improved during June – reaching a four-month high – underlying demand remained weak. A survey by IHS Markit found that output in manufacturing and services remained in decline, while incoming new business continued to fall.
The European Commission (EC) expects the region to experience a “deep” recession this year, warning: “the economic impact of the lockdown is more severe than we initially expected”. The eurozone is forecast to contract by 8.7% in 2020, compared to an earlier prediction of 7.7%, before rebounding to growth of 6.1% in 2021. However, the impact of the pandemic and the strength of recovery is set to vary from one member state to the next, and this variation is likely to be more pronounced than previously anticipated.
The European Central Bank (ECB) reported that its €1.3 trillion economic stimulus measures were “effective … adequate and … working” during the month. ECB President Christine Lagarde expects to use the “entire envelope” of its Pandemic Emergency Purchase Programme (PEPP) “unless there are significant upside surprises”. President Lagarde warned: “uncertainty about the overall scale and speed of the rebound remains high … the balance of risks to the euro area growth outlook remain on the downside”.
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