Global Daily – Less deep…but still a double dip recession
Euro Macro: Eurozone Q4 GDP contracts modestly amid large country variation – Eurostat published the first estimate of eurozone 2020Q4 GDP. It showed that GDP contracted by 0.7% qoq, following a 12.4% expansion in Q3. The outcome marks a less severe contraction than expected by consensus and our own forecast. The outcomes per individual member state vary widely, ranging from -4.3% qoq for Austria, -2.0% for Italy and -1.3% for France to + 0.1% for Germany, +0.2% for Belgium and +0.4% for both Spain and Portugal.
These differences largely reflect the timing as well as the stringency of the lockdown measures to limit the spreading of the COVID-19 virus. For instance, lockdown measures were less stringent in Germany than in France for much of Q4, but were stepped up significantly in Germany around mid-December and have been more stringent than in France since then. Austria, which staged the sharpest drop in GDP in Q4 has stepped up lockdown measures sharply as from mid-October onward and has made them even more stringent than during the first wave of the pandemic in 2020H1.
Also, Spain’s statistical bureau INE mentions that the Q4 GDP number is surrounded by an unusually large degree of uncertainty, as it is based on hard economic data until November. Spain’s December data had to be estimated based on surveys and other forms of data collection, while lockdown measures were stepped up in the final weeks of December, which made these alternative forms of data collection more complicated. Therefore, the data could be subject to unusually large revisions, according to INE.
Besides the distortions thanks to lockdowns during Q4, some countries still reported distortions due to the lockdowns and re-openings during Q1-Q3. For instance, Frances’s statistical bureau INSEE mentions that total fixed investment expanded by 2.4% qoq in Q4, but that this was thanks to a rebound in investment in the market services sector (+7.1%), driven in particular by a remarkably high number of property transactions, probably due to a catch-up effect from previous quarters. In contrast, investment in France’s manufacturing sector contracted by 1.1% in Q4. Looking forward, we expect another contraction in GDP in 2021Q1, as lockdown measures have either remained unchanged or have become more stringent than those in 2020Q4 in all the big eurozone countries, while we have assumed that no serious unwinding of these measures can be expected during the remainder of Q1. We have pencilled in a 1.5% qoq decline in GDP in 2021Q1, but the risks to this estimate seem tilted to the downside.