Europe’s economy suffered its deepest contraction on record in the first quarter and worse is to come as the region crashes into a recession triggered by the introduction of measures to contain the coronavirus.
Preliminary data published on Thursday showed that EU GDP shrank by 3.5% in the first quarter of 2020 versus the final quarter of last year when the region’s economy was still expanding. Compared with the first quarter of 2019, the fall was 2.7%.
Economic output in the 19 EU countries that use the euro shrank by 3.8% in the January to March period.
“These were the sharpest declines observed since [the] time series started in 1995,” the EU statistics office said in a statement.
Countries across Europe introduced strict limits on travel and business activity in March in a bid to prevent the coronavirus outbreak overwhelming national health systems. Non-essential shops were closed and many factories shut down.
The collapse in economic activity was most acute in countries hit hardest by the disease.
France reported a drop of 5.8% in first quarter GDP — the worst since quarterly record keeping began in 1949, according to the national statistics agency. Italy’s GDP, meanwhile, fell by 4.7% in the quarter.
That means the second and third biggest economies in the European Union were already in recession at the end of March because they had both suffered declines in the fourth quarter of 2019.
The slump is only expected to deepen in the second quarter, given much of the region has been in lockdown for the whole of April.
“Brace yourself for worse to happen,” tweeted Carsten Brzeski, chief economist at ING Germany. “This was only with roughly two weeks of lockdown and supply chain disruptions,” he said in reference to the first quarter data.
The International Monetary Fund expects EU GDP to fall by 7% this year, and recent data suggests economic activity in March and April may have crashed by between 20% and 30%.
EU governments have responded by announcing job protection programs to try to prevent a disastrous spike in unemployment. Data published Thursday showed only a slight uptick in the bloc’s unemployment rate in March, to 6.6% from 6.5% in February.
But the dire first quarter data, and the prospect of worse to come in the April to June period, will pile pressure on EU governments to finalize plans for a trillion-euro recovery fund to rebuild their economies.
The European Central Bank, which has also stepped up with a commitment to buy more than €1 trillion ($1.1 trillion) worth of bonds and other assets this year, may also need to do more to ease financial market strains and prop up the economy.
President Christine Lagarde said Thursday that euro area GDP could fall by between 5% and 12% this year depending on the duration of lockdowns and the success of stimulus programs. She warned that the tough economic data is “just beginning to come.”
“The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime,” she said.
The ECB lowered interest rates on long-term loans to banks but did not move to ramp up bond-buying even further. However, Lagarde said the central bank was ready to do so in the future “by as much as necessary and for as long as needed.”