Eurozone Q1 GDP down nearly 4% on pandemic initial hit in March

LONDON (ICIS)–GDP growth in the eurozone fell 3.8% in January-March, compared to the fourth quarter of 2019, due to the coronavirus pandemic, although its full effect on the economy was not fully felt until March, EU statistical agency Eurostat said on Thursday.

Generalised lock-downs across the 19-country eurozone to contain the pandemic were mostly established from the second half of March.

In the wider, 27-country EU GDP fell in the first quarter by 3.5%, compared to the October-December 2019 quarter.

“These were the sharpest declines observed since time series started in 1995. In March 2020, the final month of the period covered, Covid-19 containment measures began to be widely introduced by [EU] member states,” said Eurostat.

The sharp quarter-on-quarter fall in the first quarter compares to growth of 0.1% and 0.2% in the eurozone and the EU, respectively, in the final quarter of 2019.

Year on year, GDP fell 3.3% in the eurozone and 2.7% in the EU.

INFLATION NEARS 0%
Eurostat also published on Thursday a flash estimate for April’s inflation which, at 0.4%, nearly halved from March, when it had also nearly halved from February.

Lock-downs instituted in Europe to contain the spread of coronavirus have hit energy prices hard and pushed overall inflation down.

The lock-downs depressed economic activity in April followed March’s  historic fall in crude oil prices caused by the price war started by Saudi Arabia to gain market share after its disagreements with Russia on output cuts within the OPEC+ group of producing countries.

March’s inflation of 0.7% also nearly halved compared to February’s 1.2%.

April’s inflation fall puts further away from the eurozone’s central bank mandate of keeping  inflation close to, but below, 2%; the European Central Bank (ECB) has not hit that target since 2018.

With the full effects of the pandemic yet to come, analysts have warned the 19-country currency union could be heading to a deflationary period – negative prices.