European equity markets generally rebounded in April after sustaining steep falls in March. Although lockdowns began to ease in some countries, investors remained deeply concerned about the economic outlook for the region.
- Lockdown measures began to ease in Europe
- France slipped into recession
- Economic sentiment deteriorated sharply
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European equity markets generally rebounded in April after sustaining steep falls in March. Although lockdowns began to ease in some countries, investors remained deeply concerned about the economic outlook for the region. Initial data releases did little to allay their fears, and the eurozone’s Economic Sentiment Indicator deteriorated sharply during April, falling close to lows last seen during the Great Recession.
”The ECB believes that growth could contract in 2020 by between 5% and 12%”
In Germany, business confidence fell to its lowest level on record as the Ifo Institute’s Business Climate Index dropped from 85.9 in March to 74.3 in April. Ifo warned: “Sentiment at German companies is catastrophic … Companies have never been so pessimistic … The coronavirus crisis is striking the German economy with full fury”. Ifo estimates that Germany’s economy shrank by 1.9% during the first three months of 2020 and expects to see a contraction of 12.2% during the second quarter and of 6.6% over 2020 as a whole. Germany’s Dax Index rose by 9.3% during April, but remained 18% below the level at which it began the year.
The eurozone’s economy posted a quarterly decline of 3.8% during the first three months of the year, representing a worst quarterly performance than during the financial crisis. France slipped into recession: following a contraction of 0.1% in the final quarter of 2019, its economy shrank by 5.8% during the first quarter of 2020, registering its biggest drop since 1949. The CAC 40 Index rose by 4% during April, bit fell by 23.5% over the year to date.
Elsewhere, Spain’s economy contracted by 5.2% and Italy’s economy shrank by 4.7%. Credit ratings agency Fitch downgraded Italy’s credit rating to “BBB-“ – one step above speculative grade – and cautioned: “downward pressure on the rating could resume if the government does not implement a credible economic growth and fiscal strategy”.
President of the European Central Bank (ECB) Christine Lagarde commented: “The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime”. She warned that the region’s economic contraction is likely to be “even more severe” in the second quarter; the ECB believes that growth could contract in 2020 by between 5% and 12%, although the extent of the decline will depend on the duration of lockdown measures and the success of policies to support businesses and the workforce.
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