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European economy in record fall amid virus

The European economy shrank by a record 3.8 per cent in the first quarter as business activity from hotels and restaurants to construction and manufacturing was frozen by shutdowns aimed at preventing the spread of the coronavirus.

The drop in the 19-country eurozone was the biggest since statistics began in 1995 and sharper than the plunge in the midst of the global financial crisis in the first quarter of 2009 after the bankruptcy of US investment bank Lehman Brothers.

The drop compares with a 4.8 per cent contraction in the US during the first quarter as the shock from the outbreak hits economies around the world.

Unemployment rose only slightly, however, even amid the massive shutdowns that idled everything from florists to factories.

The February jobless figure rose to 7.4 per cent in March from 7.3 per cent in February, statistics agency Eurostat said on Thursday.

Millions of workers are being supported by temporary short-hours programs under which governments pay most of their salaries in return for companies agreeing not to lay people off.

The statistics in Europe likely understate the depth of the fall since shutdown measures were mostly put in place only in March, the last of the three months in the quarter.

Figures from France and Spain suggest the extent of the downturn.

France’s economy shrank 5.8 per cent, the most since the country’s statistics agency INSEE began keeping the figures in 1949.

The drop was particularly pronounced in services that involve face-to-face interaction, such as hotels and restaurants, retail stores, transportation and construction.

Spain’s 5.2 per cent contraction is the worst since the historical series began in 1970, according to the the National Statistics Institute, and exceeded analysts’ forecasts of 4.4 per cent versus the previous quarter.

Spain has had one of the world’s worst outbreaks with more than 24,000 COVID-19 fatalities and imposed one of the strictest lockdowns, though officials are confident the worst has passed.

In Germany, companies have applied for state aid to cover the salaries of a record 10.1 million people in the coronavirus crisis, the Federal Employment Agency reports, citing data up to April 26.

That soars past the levels seen during the financial crisis of more than a decade ago, when the German government last turned to its work scheme in a bid to prevent mass lay-offs.

The figures come before a meeting of the European Central Bank, which analysts think may expand its bond purchase program that supports governments and borrowing markets.

That decision may not come Thursday but markets are awaiting an assessment from bank head Christine Lagarde.

Originally published as European economy in record fall amid virus

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