To compare and contrast, in Q1 2009, at the height of the Great Financial Crisis, Eurozone GDP contracted by -3.1% q/q. Available national GDP releases confirm that the hit to economic activity was widespread across the region, with no economy immune to the shock: Italy (-4.7% q/q), France (-5.8% q/q) and Spain (-5.2% q/q) recorded the sharpest contractions, but GDP declines in Belgium (-3.9% q/q) and Austria (-2.5% q/q) still proved dramatic.

Black hole economics: Today’s GDP releases clearly have to be taken with a pinch of salt. With little hard economic data available for the month of March, statistics offices in fact underlined the even higher-than-usual uncertainty surrounding their Q1 growth estimates. Given the lack of administrative data, the Belgium Statistics office, for instance, stated that it used an adapted methodology for which a wide range of available information, including news releases, websites and contacts with companies and various surveys, were considered as inputs to form assumptions about the economic impact of Covid-19. Expect significant revisions to come in the months ahead.

Q1 is only the tip of the iceberg, Q2 will be MUCH worse. If the Q1 data makes you nervous, don’t ask about what is in store for Q2 2020. We expect to see a double-digit quarterly GDP contraction to the tune of close to -17% q/q in the three months between April and June. After all, confinement measures were imposed in most Eurozone economies only in mid-March and started to fully bite in April, which is when we expect economic activity levels to have dropped 30%-40% below normal. While we are seeing light at the end of the tunnel – with economies showing signs of a timid recovery in line with the gradual easing of containment measures in several countries from early May onwards – a quick return to pre-Covid-19 daily life is very unlikely. After all, we expect consumption and investment activity to remain lackluster in the post-crisis regime until a vaccine is in place as: (1) some containment measures will remain in place (most notably restrictions on large gatherings and travel, suggesting that these sectors may not fully restart in 2020) (2) consumers will remain cautious particularly in the early stages of deconfinement (i.e. we will not all go to the cinema in May) (3) it will take some time for laid-off workers or those on reduced hours to be reabsorbed in the labor market, which should keep a lid on consumer spending (4) external demand could remain impaired in the near-term with countries not all deconfining at the same time so that investment activity will also prove subdued at best. Therefore it should take until mid-2021 for Eurozone GDP to recover to its pre-Covid-19 levels. However, in some countries, particularly those that boast a large value-added share in services and tourism, the recovery process could well last until mid-2021 as these sectors may see longer-lasting damage from the crisis. Assuming no further substantial fiscal stimulus down the line in an effort to jump-start the economic recovery, the Eurozone economy looks set to contract by -9.3% in 2020.The rebound in 2021 of +9.3% is based on the assumption that the discovery and wide-spread distribution of a vaccine allows for a return to normalcy.