Euro-Area Economy Was Barely Growing Before Virus Hit Activity

(Bloomberg) --

Euro-area consumer spending weakened at the end of 2019 and trade dragged on growth, figures that show the economy was already sluggish before the coronavirus outbreak added to stresses.

With cases spiraling across the region, the whole of Italy under lock-down and companies including Deutsche Lufthansa AG seeking government support, the economy may be heading for a recession. It would be a hard test for the euro area, where monetary policy has little room to add stimulus and finance ministers disagree over how much support is necessary at this time.

In the fourth quarter, the economy only grew 0.1%, Eurostat said Tuesday. Consumer spending growth slowed to 0.1% from 0.5% in the previous period, while government spending also cooled. Employment rose 0.3%.

The figures come a day before the European Central Bank, which confirmed its first case of coronavirus among staff last night, starts discussing its options. Economists predict a big package of measures including rate cuts, asset purchases and extended liquidity supply.

Policy makers’ challenge is that they can only guess the real scope of the problem. Available data -- like today’s GDP report -- are lagging far behind, and even the freshest forecasts -- like the set the ECB will reveal this week -- are likely out of date by the time of publication.

Since then, some surveys have hinted at what may be in store. Companies have reported widespread delivery delays, plunging export orders, and slowing job growth, while investor confidence in the euro-area economy recorded the sharpest drop on record.

French Finance Minister Bruno Le Maire has been one of the most vocal advocates of a strong response, saying Europe needs a “call to arms” to defend the weakened economy. While his push for a “strong, massive and coordinated” fiscal stimulus has so far gone unheard, countries are starting to announce individual plans.

What Bloomberg’s Economists Say

“European governments can’t prevent the coronavirus outbreak from hitting the economy. What they can do is help it bounce back once the epidemic has passed. By keeping capital flowing and supplementing incomes, the needless bankruptcy of cash-strapped but viable businesses can be avoided. Plans are coming along, but politicians have more to do.”

-- Jamie Rush and Maeva Cousin. Read the EURO-AREA INSIGHT

Italy earmarked 7.5 billion euros ($8.5 billion) to help families and businesses tackle the crisis. Germany plans to invest an additional 12.4 billion euros between 2021 and 2024, loosened rules for short-term work compensation and is providing tax breaks to firms.

The French government is looking at lightening the social and tax burden for restaurants, hotels and bus companies, and providing loan guarantees for smaller companies.

--With assistance from Harumi Ichikura and Kristian Siedenburg.

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Catherine Bosley

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