The Four Major Euro Area Countries Account For 80% Of The GDP Decline In 2Q

Mind The European VAT GapImplementing VAT reforms to enhance fiscal consolidation is particularly pertinent in the euro area

Philippe Waechter (Natixis IM) | Germany and France account for 23-24% of the deterioration in GDP in the euro area, while Italy and Spain are each responsible for around 15%. The remainder of the euro area accounts for 21%. We note that the weighting of Germany’s contribution is lower than the weighting of its contribution to GDP for the euro area. The opposite is true for France and Spain, and this shows the extent of the turmoil in these two countries, particularly Spain. Conversely, Italy displays similar weightings for the two figures. The rest of the area has a lower contribution to the EA GDP contraction than its weight in the Euro Area GDP. This means that the two weakest economy in 2Q were France and Spain.

GDP for several countries in the euro area is short of figures posted during the great recession, with the euro area 4% below the financial crisis period.
In Portugal and Italy, current figures are vastly lower than in 2000. Italy stands at 86% of its 2000 figure and Germany at 111%, with France at 103% and Spain at 106%. The United States has seen relatively robust and steady growth since the great recession and has only fallen to 131%..
When we look at the chart, we can see the divergence between the US and the euro area after 2011. During the post-crisis recovery, the two profiles ran parallel, and after the roll-out of austerity policies in Europe, growth disappeared and divergence was long-lasting. 
The plan hammered out by European leaders at the mid-July summit rules out this risk of austerity, which is a good sign. 

The Spanish economy was very hard hit and tumbled 18.5%, partly as a result of the deterioration in tourism, which accounts for around 12% of the country’s GDP: tourist numbers were zero in April and May (lockdown), while June saw only a moderate uptick. Trends in 2020 are entirely incomparable with figures seen over recent years, and the country has suffered massive lost revenues. Renewed restrictions will also have a stark effect on the economy’s ability to drum up some momentum over the summer.

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