European Slump Is Worst Since World War II, Reports Show

FRANKFURT — Europe is in the midst of a downturn not seen since the end of World War II, and the worst is yet to come, the president of the European Central Bank said Thursday after the release of a barrage of dismal economic data.

“The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime,” Christine Lagarde, the president of the central bank, said as she warned that the eurozone economy could shrink by as much as 12 percent this year.

In a bid to prevent another financial crisis, the bank’s Governing Council decided Thursday to effectively pay banks to lend money and vowed to do whatever was necessary to counteract the economic impact of the coronavirus.

Ms. Lagarde’s stark assessment of the economic impact of the coronavirus came after the European Union’s statistics agency estimated that economic output in the eurozone fell 3.8 percent in the first three months of the year, the region’s worst performance since the common currency was introduced in 1999.

The French economy declined by 5.8 percent, Spain’s by 5.2 percent and Italy’s by 4.7 percent, their steepest downturns in the postwar period.

Under certain conditions the central bank will allow commercial banks in the eurozone to borrow at a rate of minus 1 percent provided the money is passed on to businesses and consumers. The negative interest rate means that banks could borrow up to 3 trillion euros, or $3.3 trillion, without having to pay all of the money back.

In a statement Thursday, the central bank also said that it was prepared to further increase its purchases of government and corporate bonds, a form of money printing intended to keep market interest rates low and make it easier for businesses and consumers to get credit.

The central bank had previously earmarked more than €1 trillion, or $1.1 trillion, for asset purchases. But the bank said Thursday it was prepared to raise that sum “as much as necessary and for as long as needed.”

“We are fully flexible and we will look at all options,” Ms. Lagarde said.

As bad as the data published Thursday looked, the next quarter could be even worse. Lockdowns did not begin until March, near the end of the three-month period covered by the report.

Unemployment in the eurozone rose only modestly in March, to 7.4 percent from 7.3 percent in February, interrupting a jobs recovery that had been underway since the low point of the eurozone debt crisis in 2013.

In France, Germany and many other countries, millions of employees are on government-subsidized furloughs and do not count as unemployed. But the jobless rate is almost certain to rise further as airlines, carmakers and other large corporations begin to lay off workers in reaction to plunging sales.

Inflation in the eurozone fell to an annualized rate of 0.4 percent in April from 0.7 percent in March as oil prices plunged. The rate is the lowest since 2016. However, prices for food, alcohol and tobacco surged.

Ms. Lagarde declined to speculate on whether the eurozone was in danger of slipping into deflation, a ruinous downward spiral of prices and demand.

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