U.S. and Eurozone Records Their Worst Ever GDP Posting

U.S. and Eurozone Records Their Worst Ever GDP Posting

Published: August 7th, 2020

 The Eurozone’s economy has shrunk by 12% in Q2 of 2020, while that of the U.S. saw a 32.9% decrease between April and June, the worst record ever posted. The data released by the Euro bloc’s statistics office are the worst since the block started producing such records in 1995. The American data, too, are the worst on record.

On Friday, July 31, the Eurozone’s statistics agency, Eurostat, released a report of the region’s economic performance showing that its economy contracted by 12.1%. According to the office, this data represents the block’s worst performance since it began preparing the records in 1995.

All the region’s biggest economies recorded two-digit drops during that period because of the stringent lockdown measures enforced to contain coronavirus spread. Accordingly, the GDP of Germany slumped by 10.1% while that of Italy slid by 12.4%. France’s recorded a 13.8% drop while Spain’s contracted by 18.5%.

The 19-member bloc sharing the euro currency recorded a 3.6% drop in its GDP during Q1. During the said time, the economies of Italy, France, and Germany dropped by more than 5%.

Strict Lockdown Measures

The latest readings of the euro zone’s economic performance factors in the months of April through June coincided with the period when all European countries enforced strict shutdowns. Though most governments have started easing these conditions, much uncertainty looms with some countries seeing increased COVID-19 cases these past few weeks.

The senior economist for Europe at Capital Economics, Andrew Kenningham, said that while some parts of Europe’s economy have come back to life, the damage done coupled with the current and the future impacts of the pandemic imply that any expected recovery may be painfully slow.

The European Central Bank foresees an overall decline of the euro zone’s GDP by 8.7% in 2020. However, the bank is confident that economic activity will rebound significantly in Q3 of 2020 through the first two quarters of 2021.

Also, the statistics agency said that flash readings reflect that the inflation in the zone was 0.4% in July. This figure is up from 0.3% recorded in June.

Consequently, the governments in the bloc have revised their actions in response to the coronavirus pandemic.

Revised Measure to Curb a Second Wave

Officials have said that they will not shut their economies fully as they did earlier. Instead, they propose to impose additional stricter rules on congregations. Other social-distancing guidelines may also be imposed to avoid a possible second wave of infections.

Andrew Walker, an economics correspondent at BBC, said that the contraction is dreadful but expected since the zone has some of the countries worst affected by coronavirus deaths globally.

He added that the lockdown measures imposed during the early stages of the health crisis were severe. In any case, a large portion of the population has been cautious, taking steps not to expose itself to the disease’s risks. The governments’ actions and that of a segment of the population resulted in an extreme decline in economic activity.

America’s Catastrophic Plunge

On the other side of the Atlantic, the situation is far gloomier. The Bureau of Economic Analysis of the U.S. said that the country’s economy recorded a drop of 32.9% annualized rate in Q2 of 2020.

The bureau’s report said further that the lockdown occasioned by the ongoing health crisis plunged the U.S. into its first recession in more than a decade. Consequently, the current situation has put an end to the country’s longest economic expansion and wiped out half a decade of economic gains in months.

In Q1 of 2020, the American economy declined by an annual rate of 5%. However, this is not an ordinary recession. The combo of economic and public health crises came in a manner that has never been witnessed before. If anything, the data does not fully reflect the hardships currently experienced by millions of Americans.

More Than 20 Million Jobs Wiped Off the Economy

More than 20 million jobs were wiped out in April alone because of the administration’s stay-at-home orders and the subsequent closure of thousands of businesses. The unemployment recorded is the worst since the country started keeping job records some 80 years ago.

Unemployment claims climbed steeply and are yet to get back to pre-pandemic levels. Though the labor market has rebounded since several states began reopening, the millions brought back to work have not closed the gap. The country is still about 15 million jobs less compared to the February 2020 figures.

And, the July jobs data is expected to announce another 2.3 million job losses. If the country meets this forecast, America will have an unemployment rate of 10.3%, which is still higher than the figure recorded during the 2008 economic crisis.

The Economy Has Been Pushed Off a Cliff

The current pandemic has thrust the American economy into unfamiliar territories. The Q2 GDP decline is almost four times what was recorded during the prime period of the economic crisis of 2008.

The lockdown affected every American. Businesses had to let go of employees, shops closed, and even schools remained shut. Meanwhile, the spending of the country’s population has steeply declined during the said period.

Consumer spending, which remains the country’s biggest economic driver, dropped by an annual rate of almost 35% during Q2 of 2020. This figure is the sharpest decline ever recorded.

With the economy starting a long and torturous recovery stretch, available data shows that businesses have different preparedness levels. Large big corporations may have increased income streams; however, small businesses are not as composed and will hurt more.

Final Thoughts

The economies of Europe and the U.S. have been severely affected by the coronavirus pandemic’s effects. The former recorded a 12% GDP decline in Q2 while the latter slipped almost 33% annualized rate over the same period. The results are the worst ever recorded by both. With the economies start reopening, uncertainty hangs in the air because of coronavirus infections’ resurgence.

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