Eurozone economy rebounds from Covid recession but output remains low

Consumer spending ramped up after first round of coronavirus lockdowns lifted in May

The eurozone economy rebounded from its coronavirus-induced recession in the three months to September, but output remained well below pre-pandemic levels and other data suggests the recovery has already stalled due to the resurgence in the spread of the virus.

The bloc’s output grew by 12.7 per cent in the third quarter of the year compared with the previous three months, better than the 9.4 per cent expected by economists polled by Reuters and the fastest rate of expansion since records began in 1995.

But gross domestic product remained 4.3 per cent smaller than its pre-pandemic level at the end of last year, and economists have warned that the fresh round of restrictions imposed in recent weeks to contain the virus could plunge the bloc back into contraction again in the final quarter of this year.

By contrast the US economy has rebounded to within 3.5 per cent of its level at the end of last year, data published on Thursday showed.


The figures came at the end of a gruelling week for European markets. While the region-wide Stoxx 600 share index was flat on the day, it was down 5.7 per cent for the week, the biggest sell-off since the pandemic rocked markets in March.

The eurozone's largest economies diverged in their performance - Germany's economy expanded by 8.2 per cent on a quarterly basis while France grew by 18.2 per cent. Italy reported growth of 16.1 per cent and Spain's output was up 16.7 per cent.

That left France's economic output 4.1 per cent below its pre-pandemic level while Germany was down 4.2 per cent and Italy was 4.5 per cent smaller. Spain was harder hit, with a 9.1 per cent gap from pre-pandemic levels - reversing its position as one of the fastest growing economies in the eurozone before the virus struck.

Gustavo Matías, a professor of economics at the Autonomous University of Madrid, said the data “confirms that the Spanish economy amplifies the economic cycle: when the world goes well, Spain does better and when it goes badly, Spain does worse”.

The sharper fall in Spanish output partially reflects the lack of international tourists in a country that relies on foreign visitors’ revenues. About 15 per cent of the Spanish economy is related to tourism revenues, the largest of any major eurozone economy.

Rosie Colthorpe, an economist at Oxford Economics, said Spain’s underperformance “reflects its dependence on the hard-hit tourism sector, where output remained 22 per cent below levels from one year ago”.

Ignacio de la Torre, chief economist at the Madrid-based investment bank Arcano Partners, said Spain’s loss of international tourism was compensated in part by Spaniards’ domestic travel, but warned: “Now comes the tough part, a tougher fourth quarter because of the medical situation.”

Separate data also published on Friday provided fresh evidence of the recent economic slowdown across the eurozone.

The bloc sank into its third consecutive month of negative inflation in October, at minus 0.3 per cent year on year. And its five-month labour market recovery went into reverse in September, with jobless numbers rising by 75,000.

Economists said all the major eurozone economies faced a fresh slowdown.

Carsten Brzeski, economist at ING, warned that in Germany “a double-dip [/DOWNTURN]/ looks unavoidable”.

“There is unfortunately still no evidence that you can simply turn on and off an economy like a light switch without causing more structural damage, maybe even a short circuit,” he said.

Peter Altmaier, Germany’s economy minister, said the government had cut its quarterly growth forecast for the final quarter of this year from 1.1 per cent to 0.4 per cent.

However, he said German industry was benefiting from the fact that supply chains had not been disrupted as they were in the spring and exports to Asia were growing rapidly. “That means that this important market has stabilised, and is growing again,” he added.

Economists at Berenberg predicted that the new restrictions in France would cause another serious contraction in the final three months of this year. “French GDP now looks set to decline significantly in the fourth quarter, possibly by 3 to 4 per cent,” they said.

French consumer spending on goods fell unexpectedly in September, dropping 5.1 per cent from the previous month - taking it back below pre-pandemic levels for the first time since May.

A similar picture emerged for German retail sales, which fell more than expected, dropping 2.2 per cent in September and reversing much of the gains in August, fuelling fears that the country’s consumer sector was losing steam even before the new semi-lockdown.

- Copyright The Financial Times Ltd 2020