Quarterly growth rate of the Eurozone economy reached to high record
- 09 December 2020
GDP growth for the third quarter was revised down slightly to 12.5%. This is still a surprisingly strong recovery from the first lockdown period though GDP remained well below the pre-Covid peak and the fourth quarter is likely to be much worse, APA reports.
In the third quarter, GDP was still 4.4% below the pre-coronavirus peak in activity reached in the fourth quarter of 2019. While this means that over two-thirds of the output losses of the crisis had been recouped, it is worth remembering that eurozone GDP was down 5% at the bottom of the Global Financial Crisis. So a gap as bad as that seen in 2008 still remains, although we have to bear in mind that the economy was not completely open in the third quarter either. Still, this explains why we don’t expect the economy to fully recover before 2022, as there is a lot of ground to regain.
Of all expenditure categories, government spending leads the way. This makes sense, with record stimulus announcements early on in the crisis, it has increased by 1.8% compared to the fourth quarter of 2019. This is just the start of what is to come and we should expect elevated government spending for a few quarters to come on the back of stimulus promises.
Household consumption has recovered far better than investment so far. The recovery of household consumption has been roughly similar to GDP in general and stands -4.6% below 4Q levels. This relatively quick recovery has been boosted by furlough schemes across the eurozone, which have supported incomes and has resulted in relatively stable consumption despite the fact that services consumption continues to be dampened by restrictions.
Investment is still far from pre-crisis levels at -10.2%. This is not unexpected of course given the huge uncertainty about the recovery, the increase in corporate sector debt and concern about deferred taxes, which have put investment on hold for many companies. It is also likely that investment will recover less quickly in general than consumption in 2021 for the same reasons.
A final take away is that productivity growth has fallen back to pre-crisis rates. This was to be expected despite hopes that some improvement in this metric was here to stay. It may be too soon to expect structural changes anyway. The number of hours worked recovered sharply in the third quarter, more or less in line with GDP developments. Compared to 3Q last year, labour productivity is now 0.4% higher, down from above 2% during the first lockdown. There's no sign of a structural boost to productivity yet as workers have increased hours more or less in line with GDP.