Keeping Lagarde Up

Image source: phol_66, vectorlight, YiAN Kourt - Shutterstock

What's going on?

Data out on Tuesday showed the eurozone economy shrank by slightly less than economists thought last quarter, but the European Central Bank (ECB) isn’t about to drop its defenses any time soon.

What does this mean?

This data was actually first reported in May, but it’s now been revised for accuracy. Not necessarily for the better, mind you: the eurozone economy was still 3.1% smaller in the first quarter than the same time last year. And compared to the last quarter of 2019, it shrank by 3.6% – its biggest quarterly decline ever.

No prizes for guessing the culprit: the coronavirus pandemic shut down an economy that was already barely growing. And even though the quarter was largely unharmed until March, the effects have reverberated ever since – which is why the European Commission is forecasting the eurozone economy will shrink by almost 8% this year…

Why should I care?

The bigger picture: It’s official! Sort of.

An economy is technically in a recession after two consecutive quarters of negative economic growth. But on Monday, the National Bureau of Economic Research snubbed the tradition of waiting until an economy is officially in a recession to declare the US economy was, erm, officially in recession. Europe doesn’t need to hear from a bean-counter to know its economy is headed for the same fate: fresh data this month showed the bloc’s manufacturing activity continued to shrink in May.

Zooming out: Sacré bleu!

The ECB has repeatedly asked eurozone countries to take more responsibility for rescuing their own economies. And the German government did just that last week, announcing a comprehensive support package (including aid for its essential autos industry) after previously agreeing to a $10 billion bailout of airline Lufthansa. France followed suit on Tuesday with the announcement of its own $17 billion bailout – of the country’s aerospace industry – as long as the companies in question commit to certain environmental targets.

Originally posted as part of the Finimize daily email.

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