Euro area GDP suffers sharpest drop in over a decade

Economic output in the euro area suffered its sharpest decline in more than a decade during the first quarter of this year, a report from the European Commission’s statistics arm shows.

The report, published by EuroStat, shows the GDP growth rate contracted by 3.3 per cent in the period following an expansion of 1 per cent in the previous quarter.

EuroStat noted that this was the sharpest decline in the euro area’s GDP since the third quarter of 2009.

The report said containment measures taken by countries across the continent to counter the outbreak of the coronavirus pandemic have affected the growth both through demand and supply channels during the first quarter of the year.

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The annual inflation rate dropped to 0.4 per cent in April from 0.7 per cent in March. Food, alcohol and tobacco was the component with the highest inflation annual rate of 3.6 per cent in April, up from 2.4 per cent in March.

Energy prices continued to fall sharply at a rate of –9.6 per cent in April, after –4.5 per cent in March.

Industrial producer prices fell month-on-month by 1.5 per cent in March, after a decrease of 0.7 per cent in February.

The Economic Sentiment Indicator (ESI) for the euro area plummeted month-on-month by 27.2 points to 67 in April 2020. This was the largest monthly decline in the ESI on record.

EuroStat said this reflected the extent of the fall in confidence among consumers and in all business sectors in April. The indicator is now very close to the lowest level recorded during the financial crisis 10 years ago.

The euro area unemployment rate rose slightly to 7.4 per cent in March from 7.3 per cent in February.

“The Covid-19 crisis has severely hit the European labour market, although the effects are not yet fully reflected in the unemployment figures,” said the report.

“On one side a significant part of those who were unemployed or have lost their job were not, or no longer, actively looking for a job due to several reasons.

“They could be limited by confinement measures, or no longer available for work for temporary reasons, as taking care of their children during the lockdown.

“Moreover, not all the employees who did not work have necessarily lost their jobs, for example when benefitting of governmental measures aiming to maintain the level of the employment; in such a case workers are still considered employed although classified as temporarily absent from work.”

The Employment Expectations Indicator (EEI) also fell sharply month-on month by 30.1 to 63.7 in April, which was its lowest level on record. The decline of EEI reflects the fall in employment plans across all business sectors.

In the European Union (EU-27), the annual GDP growth rate contracted by 2.7 per cent in the quarter, following an expansion of 1.3 per cent in the final quarter of 2019.

Industrial producer prices fell month-on-month by 1.4 per cent in the EU in March, after a decrease of 0.7 per cent in February.

The ESI plummeted month-on-month by 28.8 points to 65.8 in April. The unemployment rate slightly grew to 6.6 per cent in March, from 6.5 per cent in February. The EEI also fell sharply month-on month by 31.2 to 63.3 in April.

The EuroStat report also pointed out that the Covid-19 outbreak is having a direct impact on the production of European statistics and official statistics in general worldwide.

“The health and public safety measures introduced by national governments have put face-to-face interviews on hold and generated disruptions to primary data coming from administrative registers,” it noted.

However, it insisted measures have been taken to ensure that European statistics continue to be based on “sound foundations”.