Global economic woes as virus bites

Early indications of the catastrophic effect the Covid-19 pandemic is having on the global economy was illustrated by a raft of data published on Thursday.

David Sapsted

30 April 2020

The eurozone economy contracted at a record rate - and by more than expected - as France and Italy entered recession and Germany saw unemployment soar. Meanwhile, Chinese manufacturing hit a wall and output in Spain slumped.

Q2 economic data likely to be far worse

And, as economists pointed out, the Q1 data only reflected two weeks or so of shutdowns in Europe and that returns in the current quarter were likely to be far worse."The virus outbreak has plunged economies across the globe into a tumult that was unthinkable at the start of the year. China’s economy shrank for the first time in decades in the first quarter and the US saw its record expansion come to an end. The IMF expects the global economy to shrink three per cent this year, with the euro area dropping 7.5%," reported Bloomberg.According to a flash estimate by the European Union’s statistics office Eurostat, economic output in the 19 eurozone nations in January-March was 3.8% smaller than in the previous quarter - the sharpest decline since comparable records began 25 years ago.Economists polled by Reuters had expected a 3.5% contraction in the zone after a 0.1 per cent growth in the last three months of 2019. "And this was only with roughly two weeks of lockdown and supply chain disruptions - brace yourself for worse to happen," commented one economist amid speculation that there could be a 10% drop in Q2.

France: Q1 financial data

In France, first quarter GDP was down 5.8%, a bigger fall than in the financial crisis and the largest drop recorded since records began in 1949.INSEE, the French statistics agency, said: "Manufactured good consumption dropped sharply (–42.3%) and energy expenditure decreased markedly (–11.4%). Only food consumption increased (up 7.8%). The fall in household consumption in March 2020 was essentially due to the implementation of lockdown measures from mid-March onwards."

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Germany: more people out of work than economists expected

Meanwhile, Germany’s seasonally adjusted jobless rate leapt to 5.8% in April with the number of people out of work rising by 373,000 to 2.639 million - much higher than economists had expected.Germany's Labour Office also reported that it had received 751,000 requests from companies to put a total of 10.1 million staff on 'kurzabeit', the scheme that allows firms to temporarily furlough workers or cut their hours. Workers still get paid part of their wages, with the state stepping in to cover much of the shortfall.Ulrik Harald Bie, global macroeconomic chief economist at the Institute of International Finance, commented, "[Germany's] labour market is supported by extensive use of kurzarbeit, but unemployment is set to increase further. However, Germany has fiscal means and willpower to support growth substantially later in the year."

China's economy still badly affected by global coronavirus-related economic weakness

Meanwhile, economic data from China on Thursday showed that its recovery from the pandemic was still being badly affected by weaknesses across the world.China’s official purchasing managers' index (PMI) for manufacturing fell to 50.8 for April while a second PMI from media group Caixin came in with a reading of 49.4 in an index where a reading below 50 indicates contraction. Caixin also reported a slump in exports, with orders dropping at the fastest pace since the financial crisis in 2008.

Spain and Italy: Q1 GDP

And in Spain, GDP contracted by 5.2% in the first quarter compared to the last three months of 2019, according to the National Statistics Institute.Italian GDP was down by 4.7%, according to official figures from ISTAT, following a decline of 0.3% in October-December, meaning Italy has notched up two consecutive quarters of contraction.'