Euro-Area Confidence Posts Record Drop With Economy in Lockdown

(Bloomberg) --

Economic sentiment in the euro area plunged the most on record after the furious spread of the coronavirus forced businesses in vast parts of the region shut and prospects dwindled that life will return to normal any time soon.

The European Commission reading -- following similarly downbeat reports out of the region’s biggest economies -- comes at the end of a quarter that saw the outlook for the world and its economy thrown into disarray. New Year hopes that a calming in trade tensions would allow growth to stabilize have given way to panic in markets about a recession even greater than that experienced after the 2008 financial crisis.

Adding to the gloom, the German government’s council of economic advisers said Monday that the economy might shrink as much as 5.4% this year if restrictions aren’t lifted in mid-May.

Read more: German Government Advisers Warn of Worst Recession Since 2009

Companies big and small are reeling under the pandemic. Volkswagen’s unprecedented closure of factories in Europe and the Americas costs the world’s largest automaker 2 billion euros ($2.2 billion) a week. While the manufacturer assured it can cope with the situation for several weeks, many smaller businesses, restaurants and stores may be on the brink of bankruptcy.

The commission index slumped to the lowest since mid-2013, with the mood worsening in all sectors, along with the view of future demand and employment. The collapse was particularly pronounced in services and retail.

It might still understate the severity of the crisis because most responses were collected before strict containment measures were enacted.

Governments are trying to support the economy with record amounts of stimulus, and France, Italy and Spain have called for pooled euro-area financial resources to stem the cost. The European Central Bank has already committed to buy more than 1 trillion euros of debt and granted relief to banks to help them deal with the virus fallout.

But with hopes dwindling that the current slump will be short lived and leaders swearing in their citizens for an extended lockdown, the economy might deteriorate a lot further before it can improve.

©2020 Bloomberg L.P.