Europe’s Economy Surprises at End of Pandemic Year: GDP Update


Europe’s Economy Surprises at End of Pandemic Year: GDP Update


Two of the euro area’s four largest economies rounded off the pandemic year suggesting the region can avoid a deeper recession, while still facing headwinds from extended coronavirus lockdowns.

Gross domestic product in Spain unexpectedly increased 0.4%, defying expectations for a 1.4% drop. Output in France fell a less-than-forecast 1.3% after consumer spending rebounded sharply in December.

While the data signal businesses have found ways to cope with restrictions, the outlook in both countries — as in much of the rest of the region — remains gloomy. The spread of more infectious virus strains raises the risk of longer curbs and a greater need for stimulus. European Central Bank President Christine Lagarde has already promised to bolster support if needed.

Final Quarter

Consumer spending helped avert the worst for European economies

Source: National statistics institutes, Bloomberg survey of economists

Key Developments

  • Coronavirus vaccine delays risk another existential crisis for the European Union
  • EU paves way to bigger pandemic bailouts for companies
  • High-frequency indicators show actity remains subdued in January

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Spanish, Austrian GDP (9 a.m. CET)

Spanish growth at the end of last year was driven by a strong increase in household consumption. While good news, it still leaves output down 10% for the full year.

That makes Spain one of the worst-affected countries in Europe. The outsized importance of tourism for the economy and the relatively small size of companies compared to other European peers has left the nation particularly vulnerable to travel restrictions and shop closures.

The Austrian economy contracted 4.3% last quarter, after surging infections forced the nation into a second lockdown. Private consumption slumped at nearly twice that rate, with tourism, trade and leisure also weighing on output.

French producer prices (8:45 a.m. CET)

Separate data in France showed pricing pressures remained weak in industry at the end of the year, confirming concerns about low inflation. French producer prices in December were down 1.2% on the year, with particularly strong declines for manufactured goods and coking and refining output.

French GDP (7:30 a.m. CET)

With restrictions in place during much of the fourth quarter, consumption was down 5.4%. Business investment though continued to grow, rising 1.5% after a 21% surge in the previous three months. Exports rose 4.8%. The smaller than expected contraction at the end of 2020 means GDP for the whole year fell 8.3%.

Authorities are considering tightening restrictions beyond the current 6 p.m. – 6 a.m. curfew but has held off a decision this week, with Finance Minister Bruno Le Maire saying another lockdown should be a last resort. Such a move would stop the economy meeting the official forecast of a 6% growth in 2021, he said.