Eurozone economy shrinks, raising fears of double-dip recession

The European economy shrank another 0.7 percent in the final quarter of 2020, causing concern that the region may experience a double-dip recession before seeing any improvement amid the coronavirus pandemic.

As The New York Times reports, the eurozone economy, accounting for 19 countries, shrank by 5.1 percent in 2020 overall and is likely to see continued contraction in the first three months of this year.

A report released by the European Union on Tuesday showed the EU’s gross domestic product had shrunk by 0.5 percent.

“These declines, related to COVID-19 containment measures, follow a strong rebound in the third quarter of 2020 (+12.4% in the euro area and +11.5% in the EU) and the sharpest decreases since time series started in 1995 observed in the second quarter of 2020,” the report reads.

Citing a separate report released from Oxford Economics on Tuesday, the Times notes that continued government restrictions due to the pandemic will likely prolong the economic downslide.

“There is definitely a risk that vaccine distribution continues to be disappointing,” Tomas Dvorak, an economist with Oxford Economics, told the Times. 

“There is risk that the second quarter will also get quite bad,” he added.

Previous predictions from economists had suggested that the eurozone economy would shrink some more in the first quarter, but then rebound in the second, the Times reports. This hypothesis had been fueled by the assumption that vaccine distribution would be widespread and economic restrictions would be lifted.

However, the Times notes that only 2.5 percent of people across the 27 European Union states have received a vaccine thus far.

And even once vaccines become widely available, people may be reluctant to return to pre-pandemic norms, wary of potential health risks.

“I’m wary of saying we’ll get back to normal, because it’s quite hard to pin down what normal is,” Dvorak said. “But I think it’s reasonable to assume that consumers will resume their spending patterns.”