German GDP contraction leaves eurozone facing double-dip recession

The German economy shrank 1.7% in the first three months of this year, as lockdown measures aimed at containing the rise in coronavirus infections left the eurozone on track to fall into a double recession. hollow.

The decline in Europe’s largest economy, a reversal from 0.5% growth in the previous quarter, came as figures showed Spain’s gross domestic product fell 0.5% due to the decline in household consumption and manufacturing industry, while the production of Italy fell by 0.4% driven by the decline in the activity of the service sector.

But French GDP exceeded expectations by increasing 0.4% in the first quarter, supported by higher construction activity and a slight rebound in household consumption.

Eurozone GDP figures due to be released later on Friday are expected to drop 0.8%, leaving the bloc lagging behind the United States and China, which rose 1.6 and 0 respectively. , 6% in the first trimester. Most economists expect a quarterly contraction in UK output when its figures are released next month.

The eurozone economy suffered a record post-war recession in the first six months of last year when the pandemic first struck, then dived again in the last quarter of 2020 by 0.7%. A further contraction in the first quarter would leave it in a second technical recession, defined as two successive quarters of negative growth.

In Germany, the decline in household consumption offset the rise in manufacturing exports. Economists polled by Reuters had expected a 1.5% drop in GDP.

“The coronavirus crisis caused a further decline in economic performance at the start of 2021,” said the federal statistical office. “It affected household consumption in particular, while exports of goods supported the economy.”

Germany tightened lockdown rules across much of the country this month, forcing many shops and schools to close again, after the federal government gave itself the power to override regional authorities that failed had failed to respond to the increase in coronavirus infections.

Since then, the number of new infections recorded daily has fallen to its lowest level in two weeks, fueling optimism that the recent acceleration of Covid-19 vaccinations and stricter containment measures are helping stem a third wave of ‘infections.

The German government this week raised its growth forecast for the year from 3% to 3.5%, forecasting an increase in consumer spending once restrictions are lifted. The country’s economy shrank 4.8% last year – less than most other major European economies – as the impact of the pandemic was cushioned by a surge in global trade that boosted its focused manufacturing sector on exports.

This week, more than 1.1 million vaccines per day were delivered to Germany. At least one blow has been given to more than 21.5 million people, or more than a quarter of the population, raising hopes that the infection rate will drop enough to start easing the lockdown in May.

Expectations are growing that the eurozone will rebound strongly in the second quarter of this year, with consumers triggering a wave of pent-up spending once countries start lifting containment measures and vaccinations continue to ramp up.

The European Central Bank projects growth of 4% during this year and a return to pre-pandemic level of the economy in 2022 with additional growth of 4.1%.

French President Emmanuel Macron this week presented a four-step plan to ease restrictions over the next two months. However, French household consumption fell sharply in March after stricter restrictions were imposed. Despite a rebound in French GDP in the first quarter, it remains 4.4 percent below its pre-pandemic level.

“We’re seeing a good recovery throughout the rest of this year, so it’s really, if you will, a two-sided story,” ECB chief economist Philip Lane told Dagens Industri TV on Thursday. “Looking back, the first few weeks were very tough for many companies. . . and just because we’re bouncing back from the worst doesn’t mean there’s a full recovery. “

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