Eurozone: Lessons from the third quarter rebound - ING

Bert Colijn, a Senior Economist at ING, notes that Eurozone's GDP growth for the third quarter was revised down slightly to 12.5% but this is still a surprisingly strong recovery from the first lockdown period.

"In the third quarter, GDP was still 4.4% below the pre-coronavirus peak in activity reached in the fourth quarter of 2019. While this means that over two-thirds of the output losses of the crisis had been recouped, it is worth remembering that eurozone GDP was down 5% at the bottom of the Global Financial Crisis. So a gap as bad as that seen in 2008 still remains, although we have to bear in mind that the economy was not completely open in the third quarter either."

"Of all expenditure categories, government spending leads the way. This makes sense, with record stimulus announcements early on in the crisis, it has increased by 1.8% compared to the fourth quarter of 2019. This is just the start of what is to come and we should expect elevated government spending for a few quarters to come on the back of stimulus promises."

"Household consumption has recovered far better than investment so far. The recovery of household consumption has been roughly similar to GDP in general and stands -4.6% below 4Q levels. This relatively quick recovery has been boosted by furlough schemes across the eurozone, which have supported incomes and has resulted in relatively stable consumption despite the fact that services consumption continues to be dampened by restrictions."

"A final take away is that productivity growth has fallen back to pre-crisis rates. This was to be expected despite hopes that some improvement in this metric was here to stay. It may be too soon to expect structural changes anyway. The number of hours worked recovered sharply in the third quarter, more or less in line with GDP developments. Compared to 3Q last year, labour productivity is now 0.4% higher, down from above 2% during the first lockdown. There's no sign of a structural boost to productivity yet as workers have increased hours more or less in line with GDP."