GDP readings out of Europe Friday betray eye-popping contractions that would have been unfathomable in the pre-pandemic context.
Spain was hit hardest, as output shrank a worse-than-expected 18.5% in the second quarter. Spending and investment cratered.
The absence of precedent and the sheer magnitude of the declines renders the numbers almost meaningless. For example, there’s no way to make sense of a 41% contraction, which is what the Spanish retail, transport, and restaurant sectors suffered during the period.
In Italy, the economy contracted 12.4% QoQ. Both Spain and Italy instituted strict lockdowns during the epidemic in an effort to beat back Europe’s earliest outbreaks.
The numbers were “widely expected to be terrible, and this was indeed the case”, ING wrote, dryly. “The very nature of this unprecedented crisis, driven mostly by the mechanics of lockdowns rather than by economic fundamentals, will almost inevitably bring about a strong rebound in Q3”, the bank went on to say, in a note.
France contracted 13.8%, less than feared, but still easily the worst performance on record. Europe’s second-largest economy suffered massive hits to consumer spending and trade. Again, the lack of precedent makes the numbers difficult to contextualize.
Finance Minister Bruno Le Maire called it “a severe figure, but less severe than expected”. Earlier this week, Le Maire said it “isn’t the case” that the French economy is “out of the woods”.
France, along with Germany, spearheaded an ultimately successful push to establish a European recovery fund, a step towards fiscal unification and a landmark achievement for the region. The ECB is buying trillions in assets to support the recovery.
For the first half, the French economy contracted by around a fifth, but does look to be on the mend. The country is spending heavily on stimulus, consumer spending has picked up, and PMIs have recovered. But there are concerns about employment, which aren’t unique to France.
Read more: Europe Haunted By Jobless Recovery
Friday’s figures from Spain, Italy, and France, come on the heels of Germany’s preliminary report Thursday, which showed Europe’s largest economy contracted 10.1% during the second quarter, despite success in controlling the virus and effective safeguards against unemployment.
Overall, the euro area economy shrank 12.1% in Q2, obviously the biggest hit on record. The figure (below) shows the breakdown and the comparison with the first quarter.
“Some records are never to be beaten”, ING’s Bert Colijn remarked on Friday, summarizing the catastrophic prints.
“Think of Alan Shearer’s Premier League goals, Wilt Chamberlain’s 100 point game, Eddy Merckx’s victories in cycling”, Colijn added. “The second quarter eurozone GDP figure should probably go on that list as well; it would be great if it were never to be beaten”.