Euro-Zone Recession Looks Unavoidable in First Half, HSBC Says

(Bloomberg) --

A recession in the euro area “looks unavoidable” in the first half as the escalating coronavirus epidemic takes its toll, HSBC economists said.

In one of the grimmest assessments of the economic outlook for the 19-nation region yet, HSBC predicts output will drop by 0.4% in the first quarter and 1% in the following three months.

“While we see a recovery from the second half of the year, we think the disruption will leave a lasting mark and GDP will not rise to the level where we previously thought it would next year,” economists including Simon Wells and Chris Hare said in a report on Wednesday.

European Central Bank President Christine Lagarde warned European Union leaders on Tuesday that the region risks a major economic shock similar to the financial crisis unless they provide fiscal support urgently. She indicated the ECB will take steps to support bank lending as soon as Thursday.

HSBC expects that Italy, the epicenter of the epidemic in Europe, will suffer the largest downturn. Wells and colleagues also predict a recession in Germany and somewhat milder GDP declines in France and Spain.

“There are upside risks, too -- containment might prove more rapid than expected, or the fiscal response might be larger than we currently think,” the economists said. “But it is hard to be too optimistic on either front -- the European economy faces an extremely difficult few months ahead.”

To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow, Zoe Schneeweiss

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