The French and Spanish economies plunged into record contractions and German unemployment climbed more than expected amid virus shutdowns that are pushing Europe into its deepest recession of the post-war era.
France shrank 5.8 per cent, the most since 1949, with Spain suffering a 5.2 per cent drop in GDP. The figures highlight the dramatic effect of government-ordered shutdowns as just two weeks of closures and restrictions were sufficient to snuff out growth for the entire quarter.
In Germany, labour market figures showed jobless claims rose by a record 373,000 in April, far exceeding all estimates in a Bloomberg survey. Applications for state wage support increased to unprecedented levels, and demand for labour dropped, according to the country’s labour agency.
“The corona pandemic should lead to Germany’s worst post-war recession – the labour market is under immense pressure as a result,” the institution’s chief Detlef Scheele said in a statement. The jobless rate spiked to 5.8 per cent, the highest level in three years.
The virus outbreak has dragged economies across the globe into a tumult that was unthinkable at the start of the year. China’s economy shrank for the first time in decades in the first quarter and the US saw its record expansion come to an end. The International Monetary Fund expects the global economy to contract 3 per cent this year, with the euro area dropping 7.5 per cent.
Figures for the euro area later on Thursday will probably show the end of a seven-year expansion, and worse is still to come as confinement has continued for the past month.
In Austria, output shrank 2.5 per cent in the first quarter, the most since 2008. Italy will also report GDP data later on Thursday, and the European Central Bank will announce its latest policy decision.
The French economy is already in a technical recession after a small 0.1 per cent contraction at the end of 2019. In the first quarter of 2020, consumer spending dropped more than 6 per cent and investment plunged 11.8 per cent, statistics office Insee said. In March alone, household spending fell 18 per cent.
The economic destruction – from businesses collapsing to job cuts – has come despite central banks and governments pumping trillions into their economies to keep them afloat. The ECB has been at the forefront of the stimulus, unveiling a huge bond-buying program in March.
“Even though [the] coronavirus containment measures were generally limited until the final week or two of March, they will have a profound impact on growth in the quarter. In some countries, output may be down by a third in that period, pointing to a substantial hit to GDP.,” according to Bloomberg economists.
With the airline industry particularly hit, Airbus chief executive Guillaume Faury on Wednesday warned of the “gravest crisis the aerospace industry has ever known.” Germany’s Deutsche Lufthansa is seeking government aid, and British Airways this week said it would cut as many as 12,000 jobs.
Other industries, from car makers to hotels and restaurants are also struggling and more stimulus may be needed even as European countries including France start to ease restrictions in an effort to get their economies back to normal.
There have been signs of a pickup in activity as some factories reopen. Electricity use in the EU rose for the first time in eight weeks.
Even as confinement eases, lasting economic damage is likely with many small companies going out of businesses and consumers worried about both job prospects and health less likely to spend.
French Finance Minister Bruno Le Maire has repeatedly warned that the recovery will be “long, difficult, and costly” and require further fiscal stimulus.
