Europe’s Economy Shrinks in First Quarter, Germany Takes a Hit

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Figures announced Thursday showed the US economy grew 1.6% during the first quarter.

Europe’s economy shrank 0.6% in the first three months of the year as slow vaccine rollouts 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% contraction expected by economists but still far short of the rebound underway in the United States and China, two other pillars of the global economy.

Figures announced Thursday showed the US economy grew 1.6% during the first quarter, with business supported by strong consumer demand. On an annualised basis, the US grew 6.4%.

In Europe, the second straight quarter of falling output confirms the region is in a double-dip pandemic recession after a rebound in growth in the third quarter. Two quarters of falling output is one definition of a recession.

France showed unexpected growth of 0.4% compared with 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% 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 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 EU countries and will allow restaurants and cafes to reopen for outdoor service from May 3. Travel receipts there sank 75% last year.

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

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

A major factor holding back the recovery in Europe is the slow vaccine rollout, 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 billion relief package, coupled with spending from earlier support efforts, will mean additional cash support of about 11-12% of annual economic output for this year, according to economists at UniCredit bank.

By contrast, the European fiscal stimulus amounts to about 6% of gross domestic product, 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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