Oh France! Oh Spain! Oh Italy!

After yesterday’s update from Germany we move onto the second, third and fourth largest economies in the Euro area, who rather curiously have produced their figures in that order this morning. So as we mull the fact that Germany accelerated the release of its GDP ( Gross Domestic Product) numbers at exactly the wrong time we also need to be ready for bad news.

In Q2 2020, GDP in volume terms declined: –13.8%, after –5.9% in Q1 2020. It is 19% lower than in Q2 2019.  ( Insee of France)

That is like two explosions going off with the 5.9% being credit crunch like but then it being followed by a much louder bang. The total of -19% is somewhat chilling.

We know the cause.

 GDP’s negative developments in first half of 2020 is linked to the shut-down of “non-essential” activities in the context of the implementation of the lockdown between mid-March and the beginning of May

But the beginning of the recovery seems understated.

The gradual ending of restrictions led to a gradual recovery of economic activity in May and June, after the low point reached in April.

In terms of the detail well everything in the domestic economy fell with one of the components being rather curious.

Household consumption expenditures dropped (–11.0% after –5.8%), as did total gross fixed capital formation in a more pronounced manner (GFCF: –17.8% after –10.3%). General government expenditure also stepped back (–8.0% after –3.5%).

I wonder how they managed to find a category of government spending that fell?! Maybe it was stuff they could not buy as it was out of stock. But it rather sticks out as does this.

 Food expenditure slightly decreased (–0.5% after +2.8%).

In the UK we still seem to be spending more on food whereas France seems to have stocked up and then begun to de-stock.

Although the numbers are larger trade turns out to be a much smaller factor which reminds us that trade numbers are unreliable at the best of times and maybe nearly hopeless right now.

In Q2 2020, imports declined strongly (–17.3% after –10.3%), notably in manufactured goods. Exports fell in a more pronounced manner (–25.5% after –6.1%), in particular in transport equipment. All in all, foreign trade contributed negatively to GDP growth this quarter (–2.3 points after –0.1points).

Make of that what you will.


This starts especially grimly as the opening page tells us there has been a 22.1% fall in GDP. So let us look more deeply at the state of play.

The Spanish GDP registers a variation of -18.5% in the second quarter of 2020 compared to the previous quarter in terms of volume. This rate is 13.3 points lower than that registered in the first quarter.

which brings us to this.

The year-on-year change in the GDP stood at −22.1%, compared to −4.1% for the quarter

That is a bit of a “Boom! Boom! Boom!” moment although notin an economic sense and the breakdown is as follows.

The contribution of domestic demand to year-on-year GDP growth is −19.2 points, 15.5 points lower than that of the first quarter. For its part, external demand represents a contribution of −2.9 points, 2.5 points lower than that of the previous quarter.

We get a sort of confirmation from all of this from the hours worked numbers which at the same time provide a critique of the unemployment data.

In year-on-year terms, hours worked decreased by 24.8%, rate 20.6 points lower than in the first quarter of 2020, and full-time equivalent positions down 18.5%, 17.9 points less than in the first quarter, which represents decrease of 3,394 thousand full-time equivalent jobs in one year.

Some areas saw not far off a collapse in demand, because of past issues the construction numbers stood out to me.

Household final consumption expenditure experiences a year-on-year decrease of 25.7%, 19.9 points less than in the last quarter. For its part, the final consumption expenditure of the Public Administrations presented an inter annual variation of 3.5%, one tenth less than that of the preceding quarter.
Gross capital formation registered a decrease of 25.8%, 20.5 points higher than that of previous quarter. The investment in tangible fixed assets decreases at a year-on-year rate of 30.8%, which it represents 22.4 points more than in the previous quarter. By components, the investment in homes and other buildings and constructions decreased 22.6 points, going from −8.3% to -30.9%, while investment in machinery, capital goods and weapons systems it decreases 23 points when presenting a rate of −32.3%, compared to −9.3% in the previous quarter.

The reason why that sector stands out is the way it affected the economy and the banks as the credit crunch rolled into the Euro area crisis.


We advance on Italy nervously because of its past record but the fall was in fact the smallest of these three.

 In the second quarter of 2020 the seasonally and calendar adjusted, chained volume measure of Gross
Domestic Product (GDP) decreased by 12.4 per cent with respect to the previous quarter and by 17.3 per
cent over the same quarter of previous year.

As to the breakdown well it was everything if we skip over a slightly bizarre focus on farming.

The quarter on quarter change is the result of a decrease of value added in agriculture, forestry and
fishing, in that of industry as well as in services. From the demand side, there is a negative contribution
both by the domestic component (gross of change in inventories) and the net export component.

Farming is of course very important but it hardly the main player in this context.


There are a lot of contexts to this so let us start with the national ones. Spain was the main “Euro Boom” beneficiary with annual economic growth reaching 4.2% in early 2015 but now we are reminded that it can be the leader of the pack in down as well as upswings. Italy has lost less but it is hard not to think that is because it has less to lose and this from  @fwred is rather chilling.

As the morning has developed we can now look at the overall picture for the Euro area.

In the second quarter 2020, still marked by COVID-19 containment measures in most Member States, seasonally
adjusted GDP decreased by 12.1% in the euro area and by 11.9% in the EU, compared with the previous quarter,
according to a preliminary flash estimate published by Eurostat, the statistical office of the European Union.
These were by far the sharpest declines observed since time series started in 1995. In the first quarter of 2020,
GDP had decreased by 3.6% in the euro area and by 3.2% in the EU.

We can use the numbers to compare with the United States as the annual decline of 15% of the Euro area is larger than the 9.5% there. I think this is outside the margin of error but potential errors right now will be large.

There is a collective assumption that these things will bounce back and I am sure that some areas will. But there are others where it will not and if we think of the “girlfriend in a coma” it never seems to do that. Quarterly economic output in Italy was 417 billion Euros at the beginning of 2017 rising to 431 billion and now falling to 356 billion.

In the end this is the problem with all the can kicking. We have arrived at the next storm without fixing the damage caused by the last one. Where do you go when the official interest-rate is -0.6% and of course -1% for the banks?

15 thoughts on “Oh France! Oh Spain! Oh Italy!

    • To be fair to Italy 1993 i can be absolutely certain the economy and society was working far better for the masses then in comparison to 2020.

      1993 wealth with 2020 distribution i.e. For the few not the many.

      • Yes you are probably correct. I recall Greece in the late 70’s and early 80’s before the Euro and when GDP was much lower. Nevertheless people could easily afford rent, food and to eat out frequently even if their vehicles were not shiny new mercs bought on the never never. They did without a lot of what are considered consumer must haves today but everyone had the basics and enjoyed life. There’s many now who struggle with obtaining basic living Standards although the economy is supposedly much stronger.

  1. Hello Shaun,

    Re: Where do you go when the official interest-rate is -0.6% and of course -1% for the banks?



    Well why not ? all GOP are intent on shutting up shop yet again with a virus that defies containment – eventually they will have to admit to that……

    or may be not , furlough pay for all ? the new name for UBI/dole grain ?


  2. Do comparisons with previous years take into account population growth? If not then the dismal picture should be a whole lot worse.

    • Pavlaki

      Its a bit more complex than that as ageism must also be taken into account.

      Even before the coronavirus started to spread around the world ageism was forecast to cause a problem in China, Japan and many in many other economies and debt was getting out of control so there were two main issues which were already causing problems to world economic.

      Now we have the virus to contend with.

      However we don’t know where all this is going but if a second and third wave of the coronavirus spreads rapidly it could reduce some of the elderly.

      Nature is going to take its course here despite what the leaders and politicians will do.

      At the moment there is no antidote and there might not be.

      • If you go on Google and type “Japan gdp”, it brings up an interesting graph, which shows how Japan has essentially flatlined in USD terms since 1993, which is the current Japanese GDP figure too. Compare it with Germany esp on GDP per head, given that both have similar age issues.

      • There is no problem with age, the solution has already been found: automation.
        Society can afford our pensions, our welfare, our health service; it just requires the political will, and recapturing our politicians.

  3. Given that Spain relies heavily on tourism and construction for the British immigrants, sorry expats, it is not too surprising that its GDP is affected so badly. Italy is similar on tourism (remember that rather desperate email I had from Aosta as the lockdown began?) and quite a lot of the economy is shadier than Dominic Cummings’s driving. Spain in particular will see cash sucked towards buildings – remember all those empty apartment blocks in 2010, just like in Ireland? The same issue exists on an even bigger scale in China, so clearly the asset magnet is having its effects right across the developed world.
    As remarked above, all the can-kicking has merely put off the evil day when it was discovered a lot of jobs didn’t really exist. It has gone on so long that the inevitable next crisis has appeared before we can clear out and rearrange from the last one. Quite how any nation is going to undo this printing and low rates seems still worse than opaque, so as the housing crash lurches into view across these countries (don’t hear much about Brits going to France these days) are going to be amongst the worst hit as the Northern Europeans recover ( we can guess which group the U.K. is in as Nationwide and Zoopla try to talk up prices). There are going to be some quite severe stresses within the EU as the northern economies balk at further bailouts. That some in Italy think that the lira and lira bonds will save them is beyond comment.

    • The status of UK expats after BREXIT is still under discussion but Spanish government officials have been making very soothing noises to reassure ex pat Brits that they are their “friends” and welcome to stay, of course they are also a source of income tax and property taxes and their status must be protected to ensure future Brits keep buying Spanish properties old and new and give 15% of the price to the government – think we had it bad with stamp duty at 5% above £500,000 and zero up to £500,000?France levies a similar rate but prices have been falling in recent years in France -as you say Dordogneshire isn’t so attractive now. Imagine the horror if there were a crash in property prices in Spain and northern Europeans stopped buying en masse as they have been due to restrictions based on Covid, nearly every wheel would then have fallen off Spain’s economic wagon.

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