The European economy shrank 0.6% in the first three months of the year, as slow vaccine deployments and prolonged lockdowns delayed a hoped-for recovery – and underscored how far behind the region is by compared to other major economies to rebound from the coronavirus pandemic.
The decline in output in the 19 countries using the euro was less than the 1% contraction expected by economists but still well below the rebound underway in the United States and China, two other pillars of the global economy. .
Figures released Thursday show the US economy grew 1.6% in the first quarter and 6.4% on an annualized basis, with strong consumer demand supporting businesses.
In Europe, this was the second consecutive quarter of declining output, meaning the region fell back into 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 a recovery.
France posted an unexpected 0.4% growth from the previous quarter, while the main negative surprise came from Germany, the continent’s largest economy. Activity there declined a 1.7% larger than expected as the manufacturing sector was hit by a disruption in parts supply, in addition to services and travel due to related business restrictions. to the pandemic.
French authorities predict that the outlook for COVID-19 in the country will improve next month, when a larger proportion of the population is vaccinated. The government is slowly starting to lift partial lockdowns, despite a still high number of coronavirus cases and COVID-19 hospital patients. President Emmanuel Macron said Thursday that the outdoor terraces of French cafes and restaurants would be allowed to reopen on May 19 as well as museums, cinemas, theaters and concert halls under certain conditions.
Concerns about a possible second consecutive lost holiday season have 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 foreign service from May 3. Travel receipts fell 75% last year.
Economists said they expected a recovery in the coming weeks as vaccinations ramp up. The International Monetary Fund forecasts growth of 4.4% for the euro area for the whole year.
“Today’s GDP [gross domestic product] data for the first quarter point to good resilience in the bloc’s economy and send encouraging signs for the near-term outlook, ”said economist Maddalena Martini of Oxford Economics.
Katerina Grapsa, owner of a home decor store in Athens, Greece, expressed optimism as she organized her wares, including candles for Orthodox Easter, which is Sunday.
“From now on, we hope things will get better, thanks to the vaccines, thanks to the measures,” she said. “If tourism comes and they don’t bring us COVID but leave us money, it will be a lot better.”
Andreas Iosifidis, an egg seller in the Athens produce market, said: “It’s better because last year was unprecedented. This year, it’s coming to an end, we’re used to it and we’re going out shopping.
So far, Europe’s unemployment rate has only risen gradually to 8.1% in March, thanks to extensive leave assistance programs that help companies keep workers. The United States has seen its unemployment rate drop to 6.0% after hitting 14.8% at the worst of the pandemic.
One of the main factors holding back the recovery in Europe is the slow roll-out of vaccines, which has led to prolonged lockdowns. Another is less tax support to the economy through new government spending. According to economists at UniCredit Bank, US President Joe Biden’s $ 1.9 trillion relief package, coupled with spending from previous support efforts, will result in additional cash support of around 11-12% of the annual economic output for that year. In contrast, the European fiscal stimulus accounts for around 6% of GDP, even after taking into account Europe’s larger social safety net.
China was first hit by the pandemic, but brought it under control through strict public health measures and was the only major economy to grow in 2020. The United States has been hit hard by the virus but has deployed vaccinations at a rapid pace.