The Gross Domestic Product (GDP) refers to the total quantity of goods and services produced by an economy in a specific period of time. It has two approaches – one based on output and one based on expenditures. However, the two approaches are just two different ways of reaching the same result.
The Euro area countries were among the most affected ones by the coronavirus pandemic. So far, most countries in Europe went through at least one severe lockdown (e.g., Spain, Italy), and the majority were forced to restrict mobility at least twice.
As such, the GDP, which measures the economic performance of a country or, in this case, area, was strongly impacted by the lockdowns. During the summer months, the lockdowns eased, and investors wanted to see how strong the economic bounce is. This week, the GDP data for the third quarter was out, and the countries with the most severe lockdown were the ones to bounce back strongly.
GDP Up by 11.5% in Q3 2020
The news that the Euro area GDP grew by 11.5% in the third quarter when compared to the previous one is more than positive. As mentioned earlier, the bounce was stronger in France, Spain, or Italy, where the lockdown was so severe in the second quarter than the economy contracted by the most. Therefore, even the slightest economic recovery in the third quarter means a strong bounce when compared to the poor data in the second quarter.
As such, the data should be taken with a grain of salt. However, some encouraging news comes from the employment area – up 0.9% in the quarter when compared to the previous one. It means that businesses started recalling employees as slowly, but surely the economies opened up again.
In a few hours from now, the European Central Bank (ECB) will make public its December monetary policy decision. The market participants expect more easing from the central bank, delivered in terms of an extension of the PEPP program and better conditions for the TLTRO terms.
The first measure, which effectively means an extension of the quantitative easing program built in response to the pandemic, is designed to lower the yields so that businesses and households have better financing conditions. The second is designed to offer loans directly to banks under negative interest rates (i.e., -1%) so that the banks will pass the favorable conditions to businesses and households.
If it works, the GDP in the Euro area will bounce back even stronger. However, it all depends on the pandemic and how long it takes until the economies are back to normal.