Europe Plunges Into Recession as Economy Suffers Record Contraction

Date: Friday, July 31, 2020
Source: The Wall Street Journal

Coronavirus containment coupled with aggressive stimulus fans recovery hopes

FRANKFURT—Stringent lockdowns to prevent the spread of Covid-19 weighed heavily on Europe’s economy in the second quarter, causing a record contraction more severe than experienced by the U.S., but analysts said the continent’s success so far in avoiding a resurgence of the disease coupled with aggressive government stimulus should help support a nascent recovery.

The eurozone’s gross domestic product fell 40.3% on an annual basis, far exceeding the 32.9% contraction in the U.S. economy over the same period, according to data published Friday. That was equivalent to a 12.1% decline from the previous quarter, pushing the bloc as a whole into recession, by far the sharpest drop since comparable records began in 1995, the European Union’s statistics agency said in a statement.

Despite Europe’s steeper decline, recent data suggest the region “is having a much bigger snapback and there are some indicators that it may be getting ahead” of the U.S., said Holger Schmieding, chief economist at Berenberg Bank.

While the U.S. grapples with tens of thousands of new infections a day, Europe has largely brought the virus under control even as it has eased restrictions and reopened internal borders, notwithstanding a recent jump in cases in countries such as France and Spain.


Confidence appears to be surging among European consumers and businesses, supported by the billions of euros that governments have lavished on job-protection programs, aggressive stimulus from the European Central Bank and a €1.8 trillion ($2.1 trillion). European Union spending package aimed at supporting the bloc’s weaker countries.

Governments across Europe have introduced or expanded job-furlough programs in recent months, effectively paying employers to keep workers on the books and helping to support confidence and spending.

The eurozone’s unemployment rate edged up to 7.8% in June from a low of 7.2% earlier this year. In the U.S., 11.1% of workers were unemployed in June, up sharply from 3.5% earlier this year. And while many European job-protection schemes will continue into next year, an additional $600 weekly benefit for Americans who lost their jobs because of the pandemic is set to expire Friday.

The euro has been on a tear against the dollar in recent weeks, rising close to a two-year high. That reflects both investors’ rising confidence in Europe and the U.S.’s uneven progress in halting fresh infections.

“The business in Europe has been and currently is stronger than in the U.S.,” Bjørn Gulden, chief executive of German sporting-goods maker Puma SE, told reporters Wednesday on a call discussing the company’s second-quarter results. In the U.S., he said, demand varied widely from state to state.


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