PARIS – The economy of the 19-country eurozone shrank by a devastating 12.1% in the April-June period from the quarter before – the largest drop on record – as coronavirus lockdowns shut businesses and hampered consumer spending.
Economists say the worst of the downturn is past as many restrictions have eased but that the recovery will be drawn out and vulnerable to renewed virus outbreaks.
Spain, which along with Italy was among the first to be hit hard by the spread of the virus, suffered the region's heaviest drop at 18.5%. France, Italy and Portugal also endured steep declines, but no country escaped the impact of the pandemic.
For the currency union as a whole, it was the biggest decline since the records started in 1995. The broader 27-country European Union, not all of whose members use the euro, saw output sag 11.9%.
European governments are countering the recession with massive stimulus measures. EU leaders have agreed on a 750 billion-euro recovery fund backed by common borrowing to support the economy from 2021. National governments have stepped in with loans to keep businesses afloat and wage support programs that pay workers' salaries while they are furloughed. The European Central Bank is pumping 1.35 trillion euros in newly printed money into the economy, a step which helps keep borrowing costs low.
Those support measures have helped keep unemployment from spiking. The rate rose to 7.8% in June from 7.7% in May. But many job losses will wind up being permanent despite the stimulus. Major companies such as Lufthansa, Daimler and Airbus have said they will cut thousands of jobs.
Economists say the downturn was concentrated in April and May when lockdowns were most severe. Many restrictive measures have been eased, and business confidence in Germany, the biggest eurozone economy, has ticked up for three straight months.
But the outlook is for a long and uncertain climb back to pre-virus levels that could take until 2022 or longer. Also, company forecasts for the rest of the year are based on the assumption that there will not be a renewed outbreak of COVID-19, the illness caused by the coronavirus. Cases have been rising again in several countries as people go on vacations, and Britain slapped a 14-day quarantine on travelers returning from Spain.
Rosie Colthorpe, European economist at Oxford Economics, said the current third quarter will be likely to see high growth rates, “but not nearly large enough to make up for the damage.”
“Beyond this initial bounce, the recovery is set to be gradual and uneven,” with pre-virus output regained only by mid-2022, she said, adding that “recent flare-ups of the virus in several European countries risk derailing this recovery.”