Euro area headed for double-dip recession in Q1

Economic activity in the Eurozone grew a tad more slowly than previously estimated at the end of 2020, as the single currency bloc began to slip back into recession.

According to Eurostat, gross domestic product in the euro area slipped at a quarter-on-quarter pace of 0.7% over the three months to December.

That was down from a preliminary estimate of 0.6% and left GDP running 4.9% beneath its year-earlier level, against an initial estimate of -4.3%.

One small positive was the fact that while household consumption, which accounts for the bulk of GDP, fell by 3% on the quarter, private investment, which tends to lead future growth, climbed by 1.6%.

Investment therefore added to the 13.9% jump observed during the prior quarter, even if consumptions fell back after a 14.1% rebound over the prior three months.

Even so, the likely hit to German goods spending and construction from a rise in value added tax and the drag on services from lockdown restrictions led Claus Vistesen at Pantheon Macroeconomics to project a 1-2.0% drop in euro area GDP at the start of 2021.

Typically, economists label two consecutive quarters of negative growth as a recession.