Euro area GDP growth contracts in Q1 2020, likely to fall more sharply in Q2

The preliminary flash estimate of euro area’s real GDP for the first quarter showed that the economic growth contracted 3.8 percent, as compared with the fourth quarter of 2019. Today’s data is consistent with consensus expectations.

Nevertheless, the validity of the first estimate is subject to particular uncertainty, noted Commerzbank in a research report.

“For the most part, hard data are only available for January and February. So far we know little about the economic slump in the second half of March. The statisticians apparently expect economic output to decline by around 25 percent in that period”, said Commerzbank.

Even if all nations suffered from the corona pandemic, the extent of the economic collapse varies greatly. Real GDP in Austria dropped by 2.5 percent, although the nation reacted to the spread of the virus with tough measures earlier than others. For Germany, a -2.5 percent can be deduced from the national results available to date and the euro area aggregate. Meanwhile, France recorded a decline of 5.8 percent.

“Since the economic standstill lasted well into April and the economy will continue to suffer from the restrictions even after that, real GDP is likely to fall even more sharply in the second quarter than in the first three months of the year. We expect a decline of around 10 percent. With the removal of most restrictions, the economy should recover noticeably in the second half of the year. However, indirect effects such as a substantial increase in corporate debt will slow economic growth for some time to come”, added Commerzbank.