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The eurozone economy shrank less than expected in 2020 given the devastating consequences of the covid-19 pandemic, official data showed on Tuesday.
The Eurostat statistics agency said the eurozone economy shrank by 6.8 percent in 2020, and by 0.7 percent in the fourth quarter.
Though catastrophic, this was much better than the EU commission’s forecast of a 7.8 percent crash, made in November.
But early indicators show that the 19-countries that use the euro currency now face the prospect of a fresh recession after a recovery last summer was cut short by a second wave of the pandemic.
This is due to a halting start to the vaccination campaign in Europe and continued covid-related restrictions.
The better than expected figure for 2020, though still one of the worst in history, came largely from a better performance in Germany, Europe’s biggest economy.
German economic activity contracted by 5.0 percent in 2020 and even France in the end did better than expected with a slump of 8.3 percent, when a double digit crash was initially feared.
“Restrictive measures have been adapted and have become milder compared to the first wave,” said ING analyst Bert Colijn.
“Think of countries like France and Spain, for example, where industry and construction have remained largely open over the course of the quarter,” he added.
Colijn also cited sustained demand for EU goods from China, where restrictions have been scarce.
Help also came from Britain, where businesses stockpiled in the final months of 2020 with the impending end of the post-Brexit transition period.
Eurostat said that the 27-member state EU economy as a whole – which adds Poland and Sweden for example – shrank by 6.4 percent in 2020 and by 0.5 percent in the fourth quarter.
Going forward, the major risk “is that the arrival of new more transmissible variants, as well as the slow speed of vaccination programmes, delays the lifting of restrictions,” remarked Jack Allen-Reynolds, Senior Europe Economist at Capital Economics.
“This would have a much bigger effect on the Mediterranean economies that are more dependent on summer tourism” and not the likes of Germany, he said.
The EU has yet to see the benefits of a 750-billion-euro ($900-billon) recovery fund whose first payouts will hit government coffers hopefully by the middle of the year.
For now, the European economy has been largely kept afloat by an unprecedented stimulus programme by the European Central Bank that has allowed eurozone nations to borrow cheaply on the markets to provide massive support.
