European Economy Shrinks by Historic Margin

The European economy tumbled into its worst recession on record in the second quarter, as quarantines in countries across the continent brought business, trade and consumer spending to a grinding halt.

From April to June, gross domestic product fell from the first quarter by 11.9 percent in the 27 member states of the European Union, and by 12.1 percent in countries that use the euro currency, according to figures released on Friday by Eurostat, the bloc’s statistics agency.

On an annualized basis, European Union economies shrank by 14.4 percent, and eurozone economies by 15 percent, the sharpest contractions since statistics started being kept in 1995.

But there were signs that the worst may have passed since then, and that a tentative recovery was gaining some traction as governments unleashed enormous stimulus spending. Lengthy lockdowns, while painful for business and industry, have helped curb a widespread resurgence of the pandemic in most countries, easing reopenings.

The data was especially grim for nations on Europe’s southern rim, which were among the worst affected by the virus and which faced longer quarantine periods than northern European countries.

In Spain, which has had one of Europe’s highest death tolls, the economy shrank by a staggering 22.1 percent from a year ago and by 18.5 percent from the first quarter. France, the eurozone’s second-largest economy, shrank by 19 percent from a year ago and by 13.8 percent from the first quarter; and Italy, the third-largest economy in the zone, contracted by 17.3 percent from a year ago and by 12.4 percent from the first quarter. France is officially in recession, with three straight quarters of contraction.

On Thursday, the authorities reported that the German economy, Europe’s largest, shrank by 11.7 percent from the same period last year and by 10.1 percent from the previous quarter.

European Union leaders last week agreed to a landmark stimulus of 750 billion euros, or about $884 billion, to rescue their economies and to anchor a mild turnaround that had started to take hold after lockdowns began to be lifted.

But risks abound as surges in new cases are reported, increasing the possibility of more quarantines.

“The hard part of this recovery is set to start about now,” Bert Colijn, senior economist for the eurozone at ING Bank, said in a note to clients.

In New York City in April.
Credit…Arturo Holmes/Getty Images

European stocks were rising on Friday, as gnawing concerns about the economic toll of the pandemic were outweighed by the huge jumps in profit reported by American tech companies late Thursday.

All major European indexes were higher on Friday, though most by less than 1 percent. Asian markets ended the day mixed. On Wall Street, futures were pointing to a modest upswing when trading starts.

In other markets, the 10-year U.S. Treasuries were slipping, oil futures were recovering some of the losses from earlier in the week, and gold was climbing.

The blockbuster earnings reported on Thursday by Amazon, Apple, Facebook and Google seemed to briefly put aside the uncertainty and pessimism surrounding the economic impact of the pandemic, but also perhaps underscored the concerns of lawmakers, expressed on Wednesday, that American’s tech giants have gotten too big.

But the virus continues spreading, and its damage is mounting. On Thursday, the United States reported that its economy fell 9.5 percent in the second quarter, compared with the previous quarter, the most on record. On Friday, the authorities reported that the eurozone contracted 12.1 percent in the second quarter. Both the United States and Europe are in deep recessions caused by shutdowns in economic activity to curb the spread of the disease.

But Europe has had more success controlling the virus than the United States, and that has helped prompt a rise in the value of the euro currency against the dollar. More advisers are encouraging investments in European shares, pointing also to the European Union’s progress in coming to an agreement to raise money collectively and to give grants to the countries most deeply affected by the pandemic.

Alphabet, Facebook, Apple and Amazon reported a combined $28 billion in profits on Thursday.
Credit…Clockwise from left: Jason Henry for The New York Times, Victor J. Blue for The New York Times, Philip Cheung for The New York Times, Jim Wilson/The New York Times

A day after lawmakers grilled the chief executives of the biggest tech companies about their size and power, Alphabet, Amazon, Apple and Facebook reported surprisingly healthy quarterly financial results, defying one of the worst economic downturns on record.

Even though the companies felt some sting from the spending slowdown, they demonstrated, as critics have argued, that they are operating on a different playing field from the rest of the economy.

Combined, the companies reported $28.6 billion in quarterly net profit, underscoring how regulatory scrutiny remains more background noise and a distraction for them rather than an imminent threat to their businesses.

“The strong continue to get stronger,” said Dan Ives, managing director of equity research at Wedbush Securities. “As many companies are falling by the wayside, the tech stalwarts continue to gain muscle and power in this environment.”

A scene from Grand Theft Auto, a video game in which some professionals are now holding meetings with their clients.
Credit…Lewis Smithingham

With Zoom call fatigue setting in and boozy lunches out of the question during the coronavirus pandemic, housebound executives are finding new ways to meet and bond in video games. The goal is to break up a day that is crammed with get-togethers that generally look, sound and feel identical.

And for people like Lewis Smithingham, an advertising executive in Brooklyn, an outing in virtual space is a chance to form memories with people he has never met, which is a crucial part of developing relationships, business and otherwise.

“It’s my golf,” he said. Unlike golf, video games come with social distancing built in. It is back slapping without the slapping or the back, ideal during a pandemic.

Nobody knows how many executives are meeting in video games, including game publishers, but examples are popping up on Twitter and other social media platforms.

The idea of holding business meetings in a virtual world enjoyed a certain vogue about a decade ago. More than 1,400 organizations had a presence on Second Life, an online realm with everything an avatar would need, including auditoriums and beer.

For Mr. Smithingham, different games offer advantages for different clients. Gunplay and mayhem is not always the right fit. He is a fan of Animal Crossing: New Horizons, a new version of a long-popular Nintendo game, which was released in March.

“My production value is now considerably better in Animal Crossing than it is on Zoom,” he said.

Europe has a bad rep with investors. For years, asset managers and bank strategists have characterized the region by its anemic growth rate and shaky political union, and steered investors away.

Now, a crisis has turned into an unlikely investment opportunity as the region appears to have handled the pandemic better than some other parts of the world. In the past few months, European assets have staged a comeback, writes Eshe Nelson, who gives two reasons for the turnaround:

The euro has gained more than 5 percent against the dollar so far this year, according to FactSet data. Since late May, Europe’s stock market has recorded stronger gains than the S&P 500 index, after taking the strength of the euro into account.

Investors are starting to take advantage of the relative cheapness of European equities, but a sustained recovery in either stock market will depend on consumer and business confidence returning, which would in turn stir economic activity.

Here’s some of what happened on Thursday that you might have missed:

  • Ford Motor said it earned $1.1 billion in the second quarter as a large one-time gain in the value of its investment in an autonomous driving company more than offset losses in its main business. Without the gain, from its stake in Argo AI, Ford lost $1.9 billion excluding interest and taxes. The result was better than Ford’s earlier forecast of a pretax loss of $5 billion.

  • United Airlines warned its pilots that it might need to expand planned furloughs if demand for flights remained deeply depressed and a vaccine was not mass produced by the end of next year. The airline previously said that it could furlough up to one third of its pilots, or 3,900 people, this year and next.

  • Comcast, the largest cable operator in the U.S., said that Peacock, its new streaming product, attracted 10 million sign-ups in its first three months.

  • California Pizza Kitchen filed for bankruptcy protection in Texas. The company, which operates more than 200 locations in the United States and internationally, said it would use the restructuring process to close unprofitable locations and cut debt, and planned to emerge from bankruptcy in less than three months.

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