France leads GDP growth across Eurozone in third-quarter rebound

Jill Petzinger
·Germany Correspondent, Yahoo Finance UK
·3 min read
France's National Assembly is lit with the blue, white and red colours of the French flag in Paris. Photo: Charles Platiau/Reuters
France's National Assembly is lit with the blue, white and red colours of the French flag in Paris. Photo: Charles Platiau/Reuters

A relaxation of coronavirus restrictions over summer led to a rebound in gross domestic product (GDP) growth in the third quarter across the 19 eurozone countries. But the upswing is expected to be brief, as new virus infections surge daily in EU countries.

After a record 11.8% slump from the first quarter, GDP across the euro area in the third quarter increased by 12.7%.

Eurostat noted that this was “by far the sharpest increases observed since time series started in 1995, and a rebound compared with the second quarter of 2020.”

French GDP leaped by 18.2% in the quarter, but French finance minister Bruno Le Maire said on Friday that the fourth quarter will be a tough one, with the economy expected to shrink by 11% overall in 2020 — worse than the previous forecast for a 10% decline.

Europe’s largest economy Germany reported 8.2% GDP growth in the third quarter compared with the same quarter in 2019, beating predictions for a 7.3% growth. The government also revised its GDP forecast for 2020 to a decline of 5.5%, from 5.8% predicted earlier.

Germany’s third-quarter growth data was tempered this morning with data showing that retail sales dropped by 2.2% in September from the month before.

The European Central Bank said on Thursday it will leave its monetary policy unchanged, but may inject fresh monetary stimulus in December, warning that the outlook for the European economy was worsening.

Watch: What is inflation and why is it important?

READ MORE: ECB leaves policy unchanged as Europe returns to lockdown

The robust quarterly growth in Germany and France will be short-lived, as surging COVID-19 infection rates have forced Paris and Berlin to announce second lockdowns this week for the month of November.

Italian GDP jumped by 16.1% in the third quarter, while Spain, which emerged from the toughest lockdown in Europe in June, posted record quarterly GDP growth of 16.7%. However, according to the IMF, the Spanish economy is expected to shrink by 12.8% this year.

The German government freed up €10bn (£9bn, $11.7bn) this week to compensate businesses that will now be shut for the whole month of November. Small firms with fewer than 50 employees will get 75% of their monthly lost revenue paid back to them by the government.

READ MORE: Germany sets aside €10bn to compensate firms for November lockdown

However, Marcel Fratzscher, president of the German Institute for Economic Research warned that the government’s aid “will not be able to solve the longer-term problem of the hospitality, retail and travel industries in this pandemic.”

“This is one of the reasons why we will probably see numerous bankruptcies among companies in the coming months, not only in the sectors that are now directly affected,” Fratzscher said.

WATCH: ECB hints at December stimulus amid new COVID-19 lockdowns