Eurozone on course for double-dip recession – The Guardian

Business

Eurozone’s recovery goes into reverse amid second wave of Covid-19 pandemic

The eurozone is on course for a double-dip recession after the second wave of the Covid-19 pandemic during the last quarter of 2020 sent the currency bloc’s recovery into reverse.

Eurozone national income, or GDP, fell by 0.7% from October to December as governments introduced new restrictions and lockdowns to try to curb the virus. GDP fell by 0.5% in the wider EU in the last three months of the year.


With lockdowns likely to persist through much of the first quarter of 2021 and the EU commission struggling with its vaccine rollout programme, analysts said the currency block would almost certainly suffer a second bout of declining economic activity during January to March. A recession is defined as at least two consecutive quarters of negative growth.

The euro tumbled to a nine-month low against the pound in response to the figures and the prospect of double-dip recession. Sterling rose to €1.1365 for the first time since last May, meaning one euro is worth 88p.

The gloomy outlook for the eurozone was tempered by the shallowness of the fourth quarter dip, which was less severe than many economists feared following strong rebounds in output across the manufacturing and construction industries.

Last year, eurozone GDP tumbled 11.4% in the second quarter, before a reversal that saw GDP increase by 12.4% in the third quarter.

Statistics body Eurostat said the sum of the rises and falls in GDP was a 6.8% decline during 2020 as a whole.


Christoph Weil, economist at Commerzbank, said eurozone GDP will keep shrinking as lockdowns persist and large parts of the services industry remain mothballed.

“In the first quarter of 2021, the decline is likely to be somewhat steeper,” he said.

“However, there will not be a slump like the one in the first half of 2020. Instead, a noticeable recovery is likely to set in again from the spring.”

Raffi Boyadjian, senior investment analyst at currency trader XM, blamed the euro’s woes on persisting doubts about the EU’s ability to clean up its “vaccine mess” and the likelihood of an extension to the current lockdowns.

The UK, which has yet to publish a GDP figure for 2020, is on course for a contraction of around 10% – the largest of any G7 country – according to the International Monetary Fund.


It is likely to avoid a second recession after the Johnson administration delayed a full national lockdown until November, potentially lifting the average for the fourth quarter narrowly into positive territory. The UK figures will be published later this month.

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