Euro zone economy shrinks at record rate, inflation slows sharply

The eurozone economy contracted at a record rate and by more than expected in the first three months of the year and inflation slowed sharply as much economic activity in March came to a halt because of the Covid-19 pandemic, data showed on Thursday.

According to a preliminary flash estimate of the European Union's statistics office Eurostat economic output in the 19 countries sharing the euro in January-March was 3.8 percent smaller than in the previous three months — the sharpest quarterly decline since the time series started in 1995.

Economists polled by Reuters had expected a 3.5 percent contraction after a 0.1 percent quarterly growth in the last three months of 2019.

Year-on-year the gross domestic product contraction was 3.3 percent in the first quarter.

Eurostat also said consumer prices in the euro zone grew 0.3 percent month-on-month in April for a 0.4 percent year-on-year increase, slowing from 0.7 percent year-on-year in March.

But the slowdown of inflation was smaller than expected by economists, who on average forecast a deceleration to 0.1 percent year-on-year in Aril, according to a Reuters poll.

The biggest drag on the overall index cam from energy prices, which dropped 9.6 percent year-on-year.

Without the volatile energy and unprocessed food components - what the European Central Bank calls core inflation - prices grew 0.7 percent on the month for a 1.1 percent year-on-year increase. In March this measures was an increase of 1.2 percent percent.

An even narrower measure of inflation that excludes also alcohol and tobacco prices and is followed by many market economists showed prices going up 0.8 percent on the month in April and 0.9 percent year-on-year, against a 1.0 percent annual increase in March.

Separately, Eurostat said euro zone unemployment, a lagging indicator which reflect changes in the economy with a delay, ticked up to 7.4 percent of the workforce in March from 7.3 percent in February.