Economists have forecast a 10-15 percent drop to GDP across the euro area as a result of the global pandemic. National governments have been forced place large swathes of the economies in induced comas to curb the spread of the deadly COVID-19 virus. But this has prompted stark warnings that their actions are likely to trigger a global recession, which will be followed by many years of painful recovery.
Erik Nielsen, chief economist at UniCredit Bank, predicted the UK and US economies will suffer an equally brutal blow.
He said: “I don’t know yet where exactly we’ll land in terms of specific numbers, but our sense is that both the eurozone, the US and the UK will end up with drops in 2020 GDP between 10 percent and 15 percent.”
The expert added the slump could be “some three times deeper” than the 2008 financial crisis.
But he forecasts the global economy will recover faster because of the quick response by European governments to protect their businesses.
“Roughly, and ever so tentatively, I’m thinking the bottom will be some three times deeper than what we experienced during the great financial crisis, but the recovery path may be about doubly as fast, both because of the policy measures, but also because private balance sheets are so much better this time around, particularly in Europe,” said Mr Nielsen.
Using data from the Spanish Flu pandemic of 1918, he said governments that “intervened early and aggressively to stop the spread of the deceased grew faster after the pandemic was other than those which hesitated or intervened less aggressively”.
Confidence in business has suffered its worst monthly fall since records began in 1985, according to data collected by EU officials before countries imposed coronavirus lockdowns.
The EU Commission’s monthly business sentiment survey dropped 8.2 percent in March from 103 to 94.8.
Eurozone countries felt a more devastating slump, led by Italy where economic sentiment shrunk 17.6 points to 83.7.
In Germany and France, the EU’s largest economies, there were slumps of 9.8 points and 4.9 points.
Jack Allen-Reynolds, a senior Europe economist at Capital Economics, said the figures suggested a stagnant economy across the EU.
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But in a warning of worse to come, he added the record drop “understates the drop in economic activity and worse is likely to come in April”.
Analysts at the Centre for Economics and Business Research have predicted the UK will shrink 0.5 percent in the first quarter of the year, but will contract a devastating 15 percent in the second quarter.
They see it as unavoidable that the UK and much of Europe will be ravaged by the deepest recession since the financial crisis as both businesses and consumers are hit by coronavirus lockdown.
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The predicted slump would draft the 2.2 percent slump in the fourth quarter of 2008 as the banking crash took hold.
The CEBR proposed a cut in VAT as a potential kickstarter for consumer spending, and has demanded measures to promote business investment, which would not recover until 2030 otherwise.
House prices could even slump up to 13 percent in the year to the end of March 2021, the business group added.
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