Economies of the 19 countries that share the euro currency collectively lost 12.1 percent in this year’s second quarter compared to the first, the worst quarterly performance since records began being kept in 1995.
Annualized, the loss amounts to 40.3 percent, significantly worse than the U.S.’s 32.9-percent annualized contraction.
The second quarter held the bulk of economic damage done by the global economic shutdown.
France’s economy shrank 13.8 percent; Germany’s by 10.1 percent; Italy’s GDP dwindled by 12.4 percent; and Spain’s economy, the worst performer in the Eurozone, crashed by 18.5 percent.
While some European countries are again seeing a rise in the number of COVID cases, many of the continent’s governments have vowed to not shut down their economies again as drastically as they did in March and April. However, they have promised to respond aggressively if the virus resurges.
The European Central Bank has forecast an overall 8.7-percent decline in the Eurozone’s economy this year, although it sees significant growth in the current quarter.
Recent data indicates the Eurozone “is having a much bigger snapback” than was expected and greater than that in the U.S., said Holger Schmieding, Berenberg Bank’s Chief Economist.
Still, “the recovery will be painfully slow,” said Andrew Kenningham, Chief Europe Economist at Capital Economics.
SWEDEN’S ECONOMY NOT LOCKED DOWN AND OUT. Sweden’s economy is bouncing back, but it had less distance to travel than that of other European economies.
Sweden did not shut down its economy in the face of the COVID panic. Schools and most businesses remained open entirely or, at least, to some degree.
As a result, Sweden’s COVID death rate has been higher than that of its Scandinavian neighbors but lower than Belgium, Britain, France, and Spain, which enforced drastic lockdowns.
Because it remained open, Sweden’s economy is expected to decline only about 5 percent this year, while the economies of Britain, France, Germany, Italy, and Spain are all forecast to plunge by double digits.
Economic performances of many of the nation’s iconic companies, including Electrolux, Ericcson, and Handelsbanken beat analysts’ expectations for the second quarter.
The nation has recorded relatively few personal or business bankruptcies related to economic straits, banks report low rates of bad loans, companies’ credit ratings stayed strong, and the country’s housing sector showed a record gain in July.
Analysts say keeping schools open was key to ensuring parents could work and maintain family incomes and business productivity without the government needing to take on huge debts through stimulus spending.
INFLATION MAKES SURPRISE RETURN IN EUROPE. As Europe’s economies turned in their worst quarterly performance in decades during the year’s second three months, consumer prices in countries sharing the euro currency rose in July by 0.4 percent year-on-year, following a 0.3-percent bump in June.
Energy prices led the increase, rising 0.6 percent.
In July, core inflation measures, which exclude the volatile food and energy numbers, sped up 1.2 percent from 0.8 percent in June.
Analysts had expected July’s figure to remain at 0.8 percent last month, according to a Wall Street Journal poll of economists.
The European Central Bank forecasts inflation to be 0.3 percent overall this year, rising to 0.8 percent next year, and climbing to 1.3 percent in 2022, remaining below the bank’s target inflation rate of 2 percent.
July’s jump in inflation may be due to pent-up demand for a range of goods being let loose as national economies reopened.
TREND FORECAST: We had previously forecast “Dragflation,” which means economies would go down but prices would go up.
Prices would go up not because of supply and demand, since we had believed with economies locked down there would much more supply than demand, as with oil, but because the value of currencies would decline. Thus, the cheaper the currency, the more it would cost to buy products.
However, we have our Trends-Eye view on how inflation may rise even sharper. Currently, there is an unprecedented supply chain disruption. With so many nations locked down, there are shortages of supply in many product areas.
Should the supply chain disruption continue, prices would sharply escalate in affected segments, worsening the draflation trend.
MEXICO’S ECONOMY SHRINKS FOR FIFTH CONSECUTIVE QUARTER. Mexico’s recession is taking shape as the worst in a century.
The Mexican economy shrank 17.3 percent in this year’s second quarter compared to the first and compared to the 18.9-percent drubbing to the country’s GDP a year earlier.
The country’s economy will contract 10.5 percent this year, the International Monetary Fund (IMF) has forecast, although some analysts predict a loss as high as 12 percent.
“We estimate it will take until the end of 2024 to get back to the level of GDP we had at the end of 2019,” said economist Carlos Serrano at BBVA, a bank holding company.
Mexico entered a recession in 2019, when the year’s GDP retreated 0.3 percent from 2018’s.
IMF WILL LEND SOUTH AFRICA $4.3 BILLION. The IMF will lend South Africa $4.1 billion.
The loan will help support a national stimulus program worth more than $30 billion that will pay unemployment benefits and other aid to workers and businesses damaged by the economic shutdown.
The loan will mature in five years and charge interest based on a formula comprising the value of a mix of currencies and various surcharges.
South Africa’s economy will shrink 8 percent this year, the IMF has predicted, the steepest slide since 1994.
TEN YEARS’ ECONOMIC GROWTH DESTROYED IN SECOND QUARTER. Germany’s economy contracted 10.1 percent in this year’s second quarter and the U.S.’s shrank 9.5 percent, government figures show.
Damage to the U.S. GDP was worse than during any quarter of the Great Depression; Germany’s was the sharpest decline since 1970, when records began being kept.
The quarter’s crash “wiped out nearly ten years of growth,” said Florian Hense, an economist at Berenberg Capital Markets.
“We do not expect the economy to reach pre-COVID output levels until 2021 at the earliest,” said Erik Lundh, the Conference Board’s senior economist.
RESURGENT VIRUS DASHES HOPE OF QUICK RECOVERY. Hopes for a clear turn toward economic recovery have been quenched by the media hysteria reporting the rise in COVID cases through Brazil, India, Japan, South Africa, and parts of Europe and the U.S.
Across the Asia-Pacific region, which accounted for more than 70 percent of the world’s GDP growth in 2019, the pace of recovery “materially slowed” in June, according to Goldman Sachs.
U.S. businesses see the Asia-Pacific stumble reflected at home.
More than half of companies listed on the S&P 500 index reported second-quarter results averaging losses of 33 percent compared to the year before.
General Electric, General Motors, Nike, and Starbucks were among top-tier companies in the red for the period.
More than 160 major U.S. firms have gone bankrupt during the shutdown, including Ascena Retail Group, Hertz, and J.C. Penney.
“While we were encouraged by the early signs of recovery, the past few weeks demonstrate the trajectory may be uneven,” Boeing CEO David Calhoun said last week.
Boeing customer KLM airline announced 4,500 to 5,000 job cuts among pilots, cabin crews, and ground staff to be made from now through next year.
The COVID panic has halted the company’s progress in paying down debt.
“Cry and start over, is how it feels,” said KLM CEO Pieter Elbers.

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