Euro zone economy shrinks at record rate during first quarter

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.

Economists 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.

Eurostat also said consumer prices in the euro zone 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.

France saw its sharpest economic contraction since World War II in the first quarter as a lockdown from mid-March left shops shuttered and consumers hunkered down at home, official data showed on Thursday.

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French gross domestic product shrank 5.8 per cent in the quarter from the previous three months, when the euro zone’s second-biggest economy contracted 0.1%, the INSEE official statistics agency said.

The first quarter contraction was the biggest on a quarterly basis since World War II, surpassing the previous record of -5.3 per cent in the second quarter of 1968 when France was gripped by civil unrest, mass student protests and general strikes.

The slump even exceeded most economists’ expectations, which on average were for -3.5 per cent, although estimates in Reuters poll went as low as -7 per cent.

Since March 17th, France’s 67 million people have been ordered to stay at home except to buy food, go to work, seek medical care or get some exercise on their own.

INSEE said consumer spending, usually the driver of the French economy, dropped 6.1 per cent in the first quarter from the previous three months while business investment plunged 11.4 per cent.

Spain

Spain’s economy shrunk by its biggest amount on record, 5.2 per cent, in the first quarter of this year due to the crippling impact of the coronavirus crisis, preliminary data showed on Thursday. The National Statistics Institute’s figure was the worst since the historical series began in 1970 and exceeded analysts’ forecasts of a 4.4 per cent contraction versus the previous quarter.

Spain has had one of the world's worst outbreaks with more than 24,000 COVID-19 fatalities and imposed one of the strictest lockdowns, though officials are confident the worst has passed. The central bank predicts the tourism-dependent economy could shrink as much as 12.4 per cent this year though it also foresees a recovery of at least 5.5 per cent in 2021. The government has until Thursday night to send its own forecasts for the year to the European Union (EU). With the economy in hibernation since a March 14th lockdown,

Spain had already registered another record for its economy of losing nearly 900,000 jobs in the second half of that month. On an annual basis,

Spain’s economy shrank by 4.1 per cent in the first quarter, down from a 1.8 per cent increase in the previous three-month period, versus economists’ expectations of a 3.2 per centcontraction. Household spending plunged 7.5 per cent in the first quarter compared to the previous period. Fourth quarter growth in 2019 was 0.4 per cent.

Elsewhere, new figures show Italy’s unemployment rate dropped steeply to 8.4 per cent in March, the lowest for almost nine years, data, as people stopped looking for work due to the coronavirus emergency.

- Reuters