Weak jobs and retail data point to double-dip eurozone recession

Spanish unemployment has hit a five-year high and German retail sales tumbled for the second month in a row, reinforcing economists’ expectations that restrictions to contain the coronavirus pandemic will drag the eurozone into a double-dip recession.

The number of unemployed in Spain rose 44,436 compared with the preceding month, according to figures released on Tuesday by the ministry of labour, taking the country’s jobless total to more than 4m for the first time in five years.

Meanwhile, tight restrictions in Germany triggered a 4.5 per cent drop in the country’s retail sales in January compared with the previous month, as the end of a temporary cut in sales taxes also weighed on consumer spending, figures published on Tuesday showed.

The fall in retail sales was much heavier than the 0.3 per cent decline expected by economists polled by Reuters, and follows a 9.1 per cent decline in December when the latest restrictions on people’s movement were tightened by Angela Merkel’s government.

The gloomy news came as Luis de Guindos, vice-president of the European Central Bank, said the bank was likely to lower its growth forecast for the first half of this year, although he still anticipated a rebound in the second half of 2021.

The ECB is due to publish revised economic forecasts next week. De Guindos told Portugal’s Público newspaper that the short-term outlook had darkened since the bank forecast in December that eurozone gross domestic product would grow 0.6 per cent quarter on quarter in the first three months of 2021, and 1.7 per cent in the second quarter.

Eurozone GDP shrank 0.7 per cent in the fourth quarter and a contraction in the first quarter of this year would be classified as a recession, defined as two consecutive quarters of negative growth.

“Growth in the first quarter of this year, and perhaps the second, will be relatively weaker than expected, but by the second half of the year, if the vaccination programme goes as we hope, we could see a noticeable rebound in activity,” de Guindos said.

Markus Guetschow, an economist at Morgan Stanley, said high-frequency indicators that track activity in real time indicated “further weakness in the first quarter, with euro area GDP contracting by around 0.9 per cent”.

The vast majority of Spanish workers who lost their jobs in February — almost 37,000 — were in the service sector. More than twice as many women as men lost their jobs during the month.

Spanish unemployment is traditionally among the highest in the EU but has not been above 4m since 2016. Over the weekend, Spain’s El Corte Inglés department store drew up plans to eliminate about 3,000 jobs — up to 5 per cent of its workforce.

Spain also still has 900,000 people on furlough schemes, who are unable to work but could yet regain their jobs. According to data released on Tuesday, 63 per cent of people who work in sectors providing accommodation — such as hotels — are in such schemes, as are 57 per cent of travel agency workers, and 40 to 50 per cent of people working in food and drink, air transport and gambling.

Restrictions on the Spanish economy are being lifted gradually on a region-by-region basis as coronavirus infection numbers fall.

The government in Berlin is on Wednesday due to discuss whether to ease lockdown measures that are in force until at least March 7. I Non-essential stores, restaurants and most leisure and entertainment venues have been closed since December.

Unemployment in Germany rose by 9,000 to 2.9m in January, according to the country’s employment agency, which said registrations for its furlough scheme rose to 500,000 in February — its highest level since November. 

A recovery in energy prices combined with higher food prices combined to keep eurozone inflation flat at 0.9 per cent in February, according to a flash estimate published by Eurostat on Tuesday. That is the highest level since the pandemic struck Europe a year ago but still well below the ECB’s target of just under 2 per cent.

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