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Eurozone Economy Contracts by Record 40%

Stringent lockdowns weighed heavily on Europe’s economy in the second quarter, causing a record decline that was even more severe than in the U.S., but the continent’s strategy of containment coupled with aggressive stimulus is fanning hopes of a robust recovery.

The eurozone’s gross domestic product fell 40.3% annually in the three months through June, exceeding the U.S. economy’s 32.9% contraction, according to data published Friday. That is by far the sharpest decline since comparable records began in 1995, according to the European Union’s statistics agency.

However, recent statistics suggest Europe is having a “much bigger snapback and there are some indicators that it may be getting ahead [of the U.S.],” said Holger Schmieding, chief economist at Berenberg Bank.

The U.S. economy is being supported by a massive fiscal stimulus that will likely translate into a 2020 government budget deficit roughly twice as large as Europe’s, Mr. Schmieding added.

“The U.S. is paying with fiscal stimulus for its failure to tackle the pandemic decisively,” he said.

While the U.S. grapples with tens of thousands of new infections each day, Europe has largely brought the virus under control, even as it has eased restrictions and reopened internal borders, notwithstanding an increase in cases in countries such as France and Spain.

Confidence appears to be gaining among European consumers and businesses, supported by the billions that governments have lavished on job-protection schemes, aggressive stimulus from the European Central Bank, and a groundbreaking €1.8 trillion ($2.1 trillion) spending package unveiled by EU leaders last week.

The EU stimulus will push up economic growth in Greece, long one of the continent’s weakest performers, by about 2 percentage points a year for the next six years, the country’s central bank governor, Yannis Stournaras, said.

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