Europe's Covid-ravaged economy shrinks by 0.7 per cent

Eurozone contraction is better than feared but can't disguise gloomy prognosis for the year ahead

A woman passes a closed shop on the main shopping street in central Frankfurt, Germany, Tuesday, Jan. 26, 2021. To avoid the outspread of the coronavirus shops in Germany are still closed. (AP Photo/Michael Probst)
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The European economy shrank by a smaller-than-expected 0.7 per cent in the last three months of 2020 as businesses in France and Germany weathered the storm of a renewed round of lockdowns.

Tuesday's official figures offer a crumb of comfort but the outlook for the eurozone is still gloomy with the 19 member states all expected to lag behind China and the US in their post-Covid recoveries.

The eurozone shrank 6 per cent for the year according to Eurostat, the EU statistics agency.

The figure underscores a rollercoaster 12 months of freakish economic data with a retail sales collapse fuelling a plunge of 11.7 per cent in the second quarter, the biggest since 1995, followed by a rebound of 12.4 per cent in the third quarter in late summer.

The winter Covid wave has meant new restrictions on travel, business and social activity but companies in some sectors such as manufacturing have been better able to adjust than services businesses such as hotels and restaurants.

The German economy, Europe’s biggest, grew by a scant 0.1 per cent in the fourth quarter while France experienced a smaller-than-expected drop of 1.3 per cent. Overall, economists had expected the eurozone economy to shrink by as much as 2.5 per cent.

The eurozone is expected to reach 2019 levels of economic output only in 2022, officials from the European Central Bank forecast.

That contrasts with China, the only major economy to grow in 2020 with a 2.3 per cent increase in output, and with the US where Congressional budget experts foresee a rebound to 2019 levels by the middle of this year.


The International Monetary Fund last month cut its forecast for eurozone growth this year to 4.2 per cent from 5.2 per cent.

The figures arrive amid disenchantment and finger-pointing over the slow pace of vaccine distribution in the EU compared with countries such as the UAE, Israel and the UK.

“While the eurozone GDP data were better than we were expecting only a week ago, the short-term prospects for the European economy remain clouded by a challenging health situation in several countries and an underwhelming start of the vaccination rollout,” said Nicola Nobile, lead eurozone economist at Oxford Economics.