Eurozone headed for deep recession: economic institutes

The eurozone economy is expected to slide into a "deep recession" in the first half of 2020, the German ifo Institute and the KOF Swiss Economic Institute said on Thursday.

According to the two institutes, gross domestic product (GDP) in the eurozone is bound to "fall drastically" by 2.3 percent in the first quarter of 2020 compared to the previous quarter and by 10.5 percent in the second quarter. In the third quarter, on the other hand, the institutes expect a "strong recovery" of GDP by 8.7 percent.

"The possibility of the pandemic receding sooner than anticipated is weak," the institutes noted. A resurgence of the European debt crisis on a large scale would also pose a risk to development.

Structural problems and systemic downside risks would increase "substantially" if governmental measures to control the pandemic are maintained for a longer period, according to the institutes.

Industrial production in the eurozone would fluctuate particularly strongly, declining by 4.4 percent in the first quarter, followed by a huge drop of 18 percent in the second quarter, according to the joint forecast.

If containment measures are relaxed in the summer, the institutes believe that industrial production would quickly bounce back by 19 percent in the third quarter.

According to the institutes, private consumption in the eurozone would decline by 3.3 percent and 13.6 percent in the first and second quarters, respectively, followed by a 12 percent increase in the third quarter.

Due to supply disruptions, planning uncertainty and a preference for liquidity, investments in the eurozone are expected to fall by 2.3 percent and 10 percent in the first two quarters before rising by 10.4 percent in the third quarter, according to the institutes.

Due to a lack of comparable events in recent decades and on account of the unpredictable course of the coronavirus pandemic, the estimates are "subject to substantial uncertainty," the institutes stressed.