The eurozone economy registered its deepest contraction ever in Q2, according to preliminary estimates published on Friday, whilst inflation ticked up in July.

Between April and June, GDP within the bloc contracted by 12.1% from the first quarter, according to the European Union’s statistics office, Eurostat in its flash estimates.

The largest drop in GDP since the time series began in 1995 coincided with coronavirus-fuelled lockdowns, with many countries in the eurozone only starting to ease restrictions from May, Reuters reports.

The contraction surpassed market forecasts for a 12.0% decline and followed the 3.6% fall in GDP from Q1.

Spain registered the worst drop in output, with the economy contracting by 18.5% quarter-on-quarter, far worse than predicted and erasing the recovery of the last six years since the financial crisis.

Elsewhere, GDP in Italy and France also suffered a steep decline, but less than expected, by 12.4% and 13.8% respectively. The eurozone’s largest economy, Germany, reported a 10.1% contraction in Q2, worse than forecasts of a 9.0% slump.

Furthermore, inflation continued to tick up, going against forecasts of a slowdown.

According to Eurostat, consumer prices in the eurozone increased 0.4% on an annual basis in July, from 0.3% the month before and 0.1% in May. A Reuters poll of economists showed a 0.2% forecast increase in July.

In addition, underlying price pressure also sped up. Not taking into account food and energy prices, inflation increased by 1.3% from 1.1% in June, as per the flash estimates from Eurostat.

Another gauge, not including alcohol and tobacco, rose to 1.2% from 0.8% in June.

Elevated prices of industrial goods, rising from 1.7% following a 0.2% increase in June, led the acceleration in headline inflation.

The price of food, alcohol and tobacco rose by 2.0% on the year, the Reuters report adds, slowing down from the 3.2% increase in June.

Moreover, energy prices dropped by 8.3% in July, after a 9.3% drop the month before.

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