Eurozone Economy Contracts Most On Record

The euro area economy contracted at the sharpest pace since the series began in 1995 as member countries widely introduced coronavirus containment measures, preliminary flash estimate from Eurostat showed Thursday.

Gross domestic product fell 3.8 percent sequentially in the first quarter, in contrast to a 0.1 percent rise in the fourth quarter of 2019. This was the biggest fall on record and larger than economists’ forecast of 3.2 percent.

On a yearly basis, the economy shrank 3.3 percent after rising 1 percent in the fourth quarter. This was the sharpest drop since the third quarter of 2009. GDP was forecast to gain 0.1 percent.

This historic drop in GDP will surely be followed by an even poorer quarter given that most of the lockdown has taken place in April, Bert Colijn, an ING economist, said.

That said, a cautious start to the recovery will happen in the same quarter as lockdowns across the eurozone gradually get lifted, truly making this a whirlwind of a recession, the economist added.

The EU27 GDP was down 3.5 percent on quarter and fell 2.7 percent on a yearly basis in the first three months of 2020.

Another flash report from Eurostat revealed that inflation slowed in April due to a sharp decline in energy prices.

Inflation slowed to 0.4 percent in April from 0.7 percent in March. Nonetheless, this was above forecast of 0.1 percent. The fall in inflation was largely driven by a 9.6 percent decrease in energy prices.

Headline inflation remains well below the European Central Bank’s target of “below, but close to 2 percent.”

Core inflation that excludes energy, food, alcohol and tobacco, slowed marginally to 0.9 percent from 1 percent in the previous month.

On a monthly basis, the harmonized index of consumer prices gained 0.3 percent in April.

In a separate communiqué, Eurostat said the unemployment rate increased in March. The jobless rate rose slightly to 7.4 percent in March from 7.3 percent in February. The rate was expected to climb to 7.7 percent.

The number of unemployed increased by 197,000 from the previous month to 12.156 million in March.

The youth unemployment rate advanced to 15.8 percent in March from 15.4 percent in February.

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