EUROZONE ECONOMIC OUTPUT increased sharply in the third quarter of the year after an historically rapid decline brought about by the Covid-19 pandemic in the first half of 2020.

New data released today by European Union data agency Eurostat reveals that the 19 country bloc’s gross domestic product (GDP) jumped by 12.7% between July and September.

“These were by far the sharpest increases observed since [records] started in 1995,” Eurostat said.

But eurozone GDP is still 4.3% behind where it was this time last year despite the better-than-expected rally in output.

Meanwhile, the number of unemployed workers across the bloc increased by 75,000 from August to September, putting paid to a five-month-long recovery in jobless figures.

However, the unemployment rate in the single currency area was still largely flat in September from August at 8.3%. 

Jobless figures in the broader EU27 — which includes European Union member states outside the single currency area — were also stable in September compared to the previous month at 7.5%.

Compared with September 2019, however, an extra 1.8 million people in the EU and by 1.5 million in the euro area were out of work.

Jobless figures are likely to worsen in the coming months as lockdown restrictions are implemented across the EU and the euro area.

Headwinds

Separate data from Eurostat today highlights another major threat to the eurozone economy in the form of price deflation.

The single currency area sank into its third consecutive month of deflation in October at -0.3% compared to last year.

The drop-off is slightly worse than the -0.2% observed in September and is well off the European Central Bank’s (ECB’s) 2% inflation target.

Deflation is particularly bad news for countries with high debt burdens — like Italy and Greece — because it can force consumers to hold off on purchases under the assumption that prices may fall even further in the near future.

This is a recipe for lower tax receipts and wages, making it more difficult for governments to keep up with interest payments on their debt.

Yesterday, the ECB signalled that it plans to increase the size of its €1.35 trillion emergency quantitative easing programme in December.

Rolled out in March, the Pandemic Emergency Purchase Programme is aimed at staving off the deflationary effects of the pandemic.

ECB President Christine Lagarde said there is likely to be little upward pressure on prices in the near-term “owing to weak demand, notably in the tourism and travel-related sectors” as well as “low wage pressures” and the rising value of the euro against the dollar.