COURTESY HT AUG 1

Major economies shrink sharply in June quarter

Agencies

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Paris/Washington : France, Italy, Spain and the US this week reported precipitous contractions for their coronavirus-battered economies, with the pandemic wiping out years of growth in a matter of weeks as lockdowns closed shops, factories and restaurants and could mark the beginning of a period of recession.

Quarterly GDP data for European countries, released on Friday, comes exactly seven months after the world first heard about the spread of a mysterious virus in the central Chinese city of Wuhan. The pathogen has since infected more than 17.5 million people and killed 679,354 world over.

France’s economy contracted by 13.8% in the April-June quarter, mirroring similar devastation in Spain (18.5%) and Italy (12.4%). Europe as a whole saw GDP fall by 12.1% in the Eurozone and 11.9% across the bloc.

The effect of Covid-19 on the US economy was even more marked than in Europe, as it posted a second-quarter loss of 9.5% compared with the same period a year ago, the worst figure on record. If that trajectory carried through the entire year, its economy would collapse by nearly a third (32.9%), government data released on Thursday showed.

“It was a grim day at the office for the global economy... as the extent of the Covid-19 damage was laid bare,” news agency AFP quoted PVM analyst Stephen Brennock as saying.

“Europe’s biggest economy shrunk by... the biggest fall since 1970 and wiped out nearly a decade of German growth.

“Likewise, US GDP contracted by a whopping 32.9% at an annualised pace over the same period. The slump was slightly less than feared but still the worst since government records began in 1947...

“What is more, this puts the world’s biggest economy firmly in recession after posting negative growth in the first quarter,” the analyst said.

The Spanish contraction was by far the sharpest slump since the country’s national statistics agency began collecting data. In France, the startling plunge also starkly illustrated the punishing economic cost of its two-month lockdown. It was the third consecutive quarter of economic contraction in France’s worsening recession.

Germany, Europe’s largest economy, on Thursday reported a 10.1% plunge in GDP during the April-June period – the biggest drop since quarterly growth figures began being compiled in 1970, the official statistics agency said.

European governments are now countering the downturn with massive stimulus measures at the national and European Union level. EU leaders have agreed on a 750 billion-euro recovery fund backed by common borrowing to support the recovery from 2021.

With more than five years of growth wiped out in the US, pressure is mounting for the White House and the Congress to agree on a second stimulus package. The fiscal package of nearly $3 trillion had offered companies help paying wages and gave millions of unemployed Americans a weekly $600 supplement, which expires on Saturday.

The bleak numbers have added to fears about the long-term economic impact of the pandemic even as lockdowns have eased and many businesses reopened.

Economists say the downturn was concentrated in the months of April and May when lockdowns were most severe. Even with many restrictive measures phased out, outlook suggests that a long and uncertain climb back to pre-pandemic levels could take until 2022 or longer if countries don’t see renewed spread of the deadly virus.

Rosie Colthorpe, European economist at Oxford Economics, said the current third quarter was likely to see high growth rates, “but not nearly large enough to make up for the damage”.

“Beyond this initial bounce, the recovery is set to be gradual and uneven,” with pre-virus output regained only by mid-2022, she said, adding that “recent flare-ups of the virus in several European countries risk derailing this recovery.”

Countries across Europe that were hit hard by the pandemic in the spring, including Spain and France, are seeing rising infection rates after lifting restrictions and fuelling fears of a second wave of infections.

Similarly, the US -- which unlike Europe has not yet been able to get its contagion numbers firmly down – is the worst-affected nation, recording over 4.6 million cases till Friday as the virus continues to find new strongholds in states in the world’s third-most populated country