Brussels — The eurozone economy shrank less than expected at the end of 2020, though it remains on the verge of a double-dip recession amid a slow rollout of vaccines.
GDP declined 0.7% in the fourth quarter, compared with estimates for a 0.9% drop. Germany and Spain both posted surprise economic expansions in reports last week. Italy reported a contraction of 2% earlier on Tuesday.
Eurozone output fell 6.8% in 2020 as a whole.
The economy is managing to avoid slumps on the scale of those recorded at the start of the pandemic as businesses — notably manufacturers — find ways to cope with restrictions. Still, the near-term outlook remains challenging with a chaotic start to vaccinations that mean curbs will remain in place for longer.
In Germany, health minister Jens Spahn has warned of “tough weeks of shortage in this first quarter and into April”. While the country’s infection rate has been declining, it is still nearly double the level that the government has said would allow it to ease curbs.
In Italy, efforts to support the economy are being complicated by the collapse the government. Prime Minister Giuseppe Conte resigned in January after the defection of a junior coalition member, and it’s still unclear whether he has enough support to return after a reshuffle of ministers, or whether he will be replaced. There is also a slim possibility of new elections.
Business confidence has already taken a hit. Sentiment in eurozone retail trade and services — the sectors most affected by lockdowns — slipped at the start of the year. The International Monetary Fund has warned that the region is set to recover more slowly from the crisis than other economies around the world.
European Central Bank officials including president Christine Lagarde have promised to bolster support if needed. For now though, they argue, a €1.85-trillion bond-buying plan, generous long-term loans to banks and record low interest rates are sufficient to ensure financing conditions remain favourable.
• Reuters reported on Monday that the EU's biggest neighbour, Russia, estimated its economy shrank by 3.1% in 2020 amid the novel coronavirus pandemic, its sharpest contraction in 11 years. The economy ministry had last predicted that GDP would contract by 3.9% in 2020.
Statistics service Rosstat blamed restrictions put in place to slow the spread of Covid-19. But the oil and gas exporter also saw a huge drop in income due to falling oil prices.
The economy ministry expects GDP to return to growth in 2021, expanding by 3.3%.
Bloomberg
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