Daily Management Review

Euro Zone GDP Q3 Growth Beats Forecasts But Rebound Threatened By New Lockdowns


Euro Zone GDP Q3 Growth Beats Forecasts But Rebound Threatened By New Lockdowns
A summer period with few social restrictions in Europe helped the euro zone economy to bounce back in the third quarter.  
But analysts are now eagerly waiting to see how the region performs in the fourth and final quarter of the year given that two of its largest economies – Germany and France, have announced nationwide lockdowns because of a resurgence of Covid-19 infections.
According to a flash estimate released by the European Union’s statistics office, in the third quarter, there was a 12.7 per cent quarter on quarter expansion of the euro zone gross domestic product.  
In comparison, analysts had expected it to grow by 9.4 per cent.
This growth is the highest for the region for any quarter ever and denotes the bounce back of the region from the 11.8 per cent contraction it recorded for the second quarter of the current year. However, with governments tightening social restrictions once again because of a ne wave of Covid-19 infections, this growth momentum is likely to be limited.
“The euro zone economy came roaring back in the third quarter as lockdowns ended, though a full recovery is still some way off, and a setback now looms in the fourth quarter,” Claus Vistesen, economist at Pantheon Macro, said in a note.
France’s statistics office, Insee, said in a preliminary reading that the economy of the country grew by 18.2 per cent in the July to September quarter. In the previous quarter the economy had contracted by 13.7 per cent which included the month of April with the entire month facing a nationwide lockdown in the wake of the novel coronavirus pandemic.
“The massive increase in French GDP in the third quarter is of no comfort to French policymakers or households, who are now contending with a second national lockdown,” Andrew Kenningham, chief Europe economist at Capital Economics, said in a note.
Insee said that “GDP remained well below the level it had before the health crisis” despite the improvement during the summer period. The numbers for third quarter was 4.3 per cent lower than the same period a year ago when calculated on an annual basis.
A rapid increase in the number of Covid-19 infections over the past weeks has forced the French government to implement a second phase of lockdown starting Friday. This lockdown will see restaurants, bars and non-essential businesses closing down once again. Schools and factories will however remain open during this lockdown.
“We now have to contemplate the idea of a double-dip as the economy is knocked back by new restrictions,” Pantheon Macro’s Vistesen added.
Germany reported a 8.2 per cent expansion in its economy for the third quarter compared to the second quarter. According to the country’s statistics office, Destatis, this growth was driven by more consumption from households, positive activity in manufacturing and a strong growth in exports.
In the second quarter of the current year, there was a 9.8 per cent contraction in the German economy.
“These improvements are about to be washed away by the second wave of Covid-19 and a new round of national lockdowns,” Kenningham also said.
In a similar tone, Andreas Rees, chief German economist at UniCredit, said: “The likelihood of at least slightly shrinking economic activity in the fourth quarter is high.”