Europe’s economy shrinks as US, China recoveries power ahead

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Europe’s economy shrinks as US, China recoveries power ahead
Europe had its second straight quarter of shrinking economic growth, thanks to lockdowns and slow vaccine roll-outs.

30 Apr 2021

Europe’s economy shrank 0.6 percent in the first three months of the year as slow vaccine roll-outs and extended lockdowns delayed a hoped-for recovery – and underlined how the region is lagging other major economies in rebounding from the coronavirus pandemic.

The fall in output for the 19 countries that use the euro currency was smaller than the 1 percent contraction expected by economists but still far short of the rebound under way in the United States and China, two other pillars of the global economy.


Figures announced on Thursday showed the US economy grew 1.6 percent during the first quarter, and 6.4 percent on an annualised basis, as strong consumer demand supported businesses.

In Europe, it was the second straight quarter of falling output, meaning the region fell back into a recession despite a rebound in growth from July to September of last year. The latest data covers the quarter that ended March 31 and economists say the economy is on the verge of an upswing.

France showed unexpected growth of 0.4 percent compared to the quarter before, while the main negative surprise came in Germany, the continent’s largest economy. Activity there shrank by a larger-than-expected 1.7 percent as the manufacturing sector was hit by disruption of parts supplies on top of the hit to services and travel from pandemic-related restrictions on activity.

French authorities are anticipating the COVID-19 outlook in the country to be better next month, when a greater proportion of the population will be vaccinated. The government is slowly starting to lift partial lockdowns, despite still-high numbers of coronavirus cases and hospitalised COVID-19 patients. President Emmanuel Macron said on Thursday that the outdoor terraces of France’s cafes and restaurants will be allowed to reopen on May 19 along with museums, cinemas, theatres and concert halls under certain conditions.


Worry about a potential second straight lost vacation season has clouded the outlook for Mediterranean countries Italy, Spain and Greece, which rely heavily on tourism. Greece has lifted quarantine restrictions on visitors from European Union countries and will allow restaurants and cafes to reopen for outdoor service from May 3. Travel receipts there sank 75 percent last year.

Economists said they expected an upturn in the coming weeks as vaccinations accelerate. The International Monetary Fund forecasts growth of 4.4 percent for the eurozone for all of this year.

“Today’s GDP [gross domestic product] data for the first quarter suggests a fair resilience of the bloc’s economy and sends encouraging signs surrounding the near-term outlook,” said economist Maddalena Martini at Oxford Economics.

Katerina Grapsa, owner of a decorative items shop in Athens, Greece, expressed optimism as she arranged her wares including candles for Orthodox Easter, which is Sunday.

“From now on, we hope that things will get better, because of the vaccines, because of the measures,” she said. “If tourism comes and they don’t bring us COVID but leave us money, it will be much better.”


Andreas Iosifidis, an egg vendor at the Athens produce market, said that “It is better because last year was unprecedented. This year, it is coming to an end a little, and we are used to it, and we get out shopping.”


Thus far, Europe’s unemployment rate has increased only gradually to 8.1 percent in March, thanks to extensive furlough support programmes that help companies keep workers on. The US saw its jobless rate fall to 6.0 percent after spiking as high as 14.8 percent during the worst of the pandemic.

A major factor holding back the recovery in Europe is the slow vaccine roll-out, which has led to prolonged lockdowns. Another is less fiscal support for the economy from new government spending. US President Joe Biden’s $1.9 trillion relief package, coupled with spending from earlier support efforts, will mean additional cash support of about 11-12 percent of annual economic output for this year, according to economists at UniCredit bank. By contrast, the European fiscal stimulus amounts to about 6 percent of GDP, even after Europe’s more extensive social safety net is factored in.

China was hit first by the pandemic but got it under control through strict public health measures and was the only major economy to grow in 2020. The US was hard hit by the virus but has rolled out vaccinations at a rapid pace.

 
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