Europe's economic recovery faces multiple risks

Europe's economy has been hit hard by the ongoing outbreak, with the latest figures from Eurostat showing gross domestic product in the EU and the euro zone fell 11.9 per cent and 12.1 per cent respectively in the second quarter of this year, down 14.4 per cent and 15 per cent year-on-year. This is the biggest economic decline since the EU began to count in 1995. Eurostat believes this is due to the general adoption of more stringent epidemic prevention measures in EU member states during the outbreak.

Of all the EU member states included in the statistics, the worst-than-expected decline in GDP in the second quarter was in Spain, down 18.5 per cent, and a 5.2 per cent contraction in the first quarter wiped out all of the recovery in the six years following Spain's fiscal crisis in 2008-13, the data showed. Spain's economy grew for 24 consecutive quarters before the first quarter of this year and is beginning to recover fully from the 2008 financial crisis.

Germany's gross domestic product, Europe's largest economy, fell 10.1 per cent in the second quarter from a year earlier, the biggest month-on-month decline since quarterly economic data were available in 1970 and about twice as much as it shrank at the height of the global financial crisis. Stefan Coutes, an economist at the World Economic Research Institute in Kiel, said the outbreak had left the German economy "in a free fall" and that the German economy would suffer negative effects for a long time to come. But the Ifo Institute for Economic Research has raised its gross domestic product to 5.1 per cent this year from a previous contraction of 6.7 per cent, but in recent weeks has seen "surprisingly positive developments" in economic output.

France's GDP fell 13.8% in the second quarter of this year, as consumer spending, trade and investment fell sharply. Although slightly better than the 15.2 per cent decline economists had expected, it was still the worst performance since records began more than 70 years ago. Meanwhile, Italy's GDP fell 12.4% in the second quarter from the previous quarter, the biggest drop on record.

Although the European Commission said in its report that economic confidence in the euro zone rebounded more than expected in July after the restrictions imposed by the outbreak were relaxed, and the business climate index for industry and services rose sharply, the current situation presents that Europe's economic recovery faces multiple risks and should avoid over-optimism about the prospects for recovery.