Biggest drop since World War II: France, Germany warn of economic pain
Paris: Cavernous factories devoid of workers. Cranes frozen in midair over construction sites. Millions of people confined to their homes, spending a fraction of what they used to before the coronavirus hit.
Europe's pandemic-induced lockdowns were widely expected to throw the continent into a deep recession. On Wednesday (European time), Germany and France, the largest economies, showed just how bad it's about to get, warning that they were headed toward their sharpest downturns since World War II.
France officially slipped into a recession and has warned its bracing for its toughest conditions since 1945.Credit:AP
France officially slid into a recession after suffering one of the worst quarterly contractions in more than 50 years. Growth tumbled an estimated 6 per cent from January to April, from the fourth quarter, when the economy shrank slightly because of nationwide strikes, the central bank said. For every two weeks the population remains under confinement, the economy shrinks by at least 1.5 per cent, it added.
And Germany is sliding toward its deepest recession on record, with growth expected to plunge almost 10 per cent from April through June, five leading economic institutes said.
Together, the reports underscored how quickly the situation is snowballing, putting pressure on governments as they scramble to calculate timetables for reopening their economies and weigh billions more in fiscal support to blunt the damage — beyond trillions already pledged in recent weeks.
"The worst growth that France has seen since 1945 was after the great financial crisis of 2008," the French finance minister, Bruno Le Maire, told the Senate earlier this week. "We will probably go far beyond that."
President Emmanuel Macron was expected to announce in a televised address later this week that France would remain under lockdown beyond an April 15 deadline.
In Italy, where a lockdown has been in place for more than a month as the country logs one of Europe's highest death tolls from the virus, the economy will shrink 9.6 per cent in the second quarter, according to forecasts by economists at the Dutch bank ING. Spain, one of the hardest-hit countries, will see its economy decline by 8.9 per cent in the same period, ING said.
Countries are trying to balance public health with concerns that a prolonged, deep recession may prove more costly than keeping their economies frozen to stem the spread of the virus. Economists expect countries to rebound slowly whenever their shutdowns end. Austria and Denmark are already planning exit strategies to reopen businesses and lift quarantines in small waves.
Yet if Germany, the biggest economy, is a marker, any rebound later this year will not be enough to compensate for a dismal first half. For the full year, the German economy will have shrunk 4.2 per cent, the German institutes predicted.
In the eurozone, the group of 19 European Union nations that share the same currency, analysts expect a recession and a contraction of around 13 per cent this year. By contrast, in 2009, the worst financial crisis year for the bloc, the economy shrank 4.5 per cent.
Germany is sliding toward its deepest recession on record, with five economic institutes predicting growth expected to plunge almost 10 per cent from April through June.Credit:Bloomberg
The economic damage from the coronavirus has been faster, deeper and spread across nearly every economic sector. With nonessential workers ordered to stay indoors, construction activity in France plunged by 75 per cent, while industrial activity shrank by half during the first quarter.
French restaurants, hotels, transportation and wholesalers saw business slump by two-thirds, exacerbated by a sharp drop in tourism. With people confined to their homes, consumer spending dropped by a third in the first quarter, while the use of credit and debit cards, a measure of consumer activity, sank by half after France's quarantine was put in place a month ago.
The scale of the shock is similar across Europe, according to a report by the Organisation for Economic Cooperation and Development released Wednesday. A composite of leading indicators that shows turns in economic cycles fell to the lowest on record, reflecting the economic impact of the lockdowns.
A growing number of officials and analysts believe the European Union needs an enormous financial response on a scale that will confront the calamity. Short of that, they warn, the bloc risks a larger financial, economic and potentially social disaster.
The New York Times
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