Coronavirus: Eurozone economy contracts at fastest pace ever

Edmund Heaphy
Finance and news reporter
European Union lags fly outside the headquarters of the European Central Bank in Frankfurt. (Arne Dedert/picture alliance via Getty Images)

The eurozone economy shrank at its sharpest pace ever in the first three months of the year, as the coronavirus pandemic swept the bloc and forced its largest economies into shutdowns.

The common currency area’s gross domestic product (GDP) contracted by 3.8% in the first quarter of the year compared to the previous quarter, according to Eurostat, the European Union’s statistics agency.

Overall, the European Union’s economic output declined by 3.5%, which was also the sharpest decline since 1995, when the agency’s data series begins.

The stark declines, which were worse than analysts had forecast, are markedly lower than those seen in the aftermath of the 2008 financial crisis.

READ MORE: Sainsbury’s takes £500m coronavirus hit despite grocery boom

However, on a seasonally adjusted basis, output fell by 3.3% in the eurozone and by 2.7% in the EU compared with the first quarter of 2019, the sharpest declines since the third quarter of 2009.

While spillover effects from the spread of the virus in Asia likely dented the eurozone economy in the first half of the quarter, it was not until the final weeks of the period that countries initiated sweeping lockdowns designed to contain the spread of the virus.

Analysts thus expect data from the second quarter to be even worse, with a series of closely watched economic indicators suggesting the bloc’s economy suffered an unprecedented collapse as businesses across the bloc shut down.

First-quarter data from Italy, which was the first European country to enter lockdown on 9 March, has not yet been released.

“The first quarter decline in the eurozone economy is the worst for the economic bloc since at least the start of the 1970s,” said Bert Colijn, a senior economist at Dutch financial services firm ING.

“Almost all of the damage happened in the final two weeks of the quarter, showing how remarkably deep a contraction can become under mandated lockdowns,” he said.

“This time it really is different — a recession like the one we’re currently in is unprecedented.”

The decline may put pressure on the European Central Bank, whose latest monetary policy decision will be announced later on Thursday.

READ MORE: Dettol and Lysol owner Reckitt Benckiser sees 'exceptional growth'

The eurozone data came after both France and Spain, two of the bloc’s largest economies, also recorded their sharpest drop in quarterly economic growth ever.

France officially fell into recession on Thursday after recording its steepest drop in quarterly GDP since records began in 1949.

France’s statistics agency INSEE said GDP contracted by 5.8% in the first quarter of 2020, with the caused in part by the strict lockdown introduced in France on 17 March to curb the spread of coronavirus.

The lockdown caused household consumption to drop 6.1% in the quarter, while empty factories meant exports slumped by 6.5%.

Spain’s national statistics office, INE, said GDP fell by 5.2% in the first quarter. That was also the worst reading ever recorded, although official records only stretch back to 1995.

Oscar Williams-Grut contributed reporting.

Watch the latest videos from Yahoo UK