Eurozone GDP Breakdown Reveals Ongoing Drag from Leisure and Transport Sector

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Fitch Ratings-London-29 September 2020: The leisure and transport (L&T) sector was a key driver of the decline in eurozone GDP in 2Q20 and will likely continue to hold back the broader economic recovery over the next year or so.

All sectors of the eurozone economy contributed to the collapse in growth in 2Q20, but most of the weakness was concentrated in the services sector. A detailed, national breakdown of services shows that two sub-sectors accounted for the majority of the slump in the largest eurozone countries, namely wholesale and retail (W&R) and L&T, says Fitch Ratings in its latest Economics Dashboard.

The easing in coronavirus lockdown measures from May led to a swift recovery in retail sales and this is likely to boost both the W&R sector and the economy as a whole in 3Q20. At the same time, it is likely that L&T, which consists of three sectors – accommodation and food services; transport and storage and arts; entertainment and recreation (‘entertainment’) – will continue to weigh heavily on eurozone growth prospects given the ongoing need for social distancing.

Of the largest countries in the eurozone, Spain experienced the biggest decline in services due to the substantial weight of L&T in the economy. The country’s high dependence on tourism and the closure of its borders at the height of the lockdown meant the flow of international visitors ground to a halt in April and May, contributing significantly to the slump in GDP.

Recent high-frequency indicators suggest that growth will rebound significantly in 3Q20, as we discussed in our recent Global Economic Outlook, but the eurozone recovery will remain fragile while fears of coronavirus and restrictions persist.

The Economics Dashboard report, “Eurozone 2Q20 GDP Shock by Sector” is available at the above link and at www.fitchratings.com.

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