Figures show Europe’s economy contracted in the first three months of the year
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 U.S. economy grew 1.6% during the first quarter, with business supported by strong consumer demand. On an annualized basis, the U.S. 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 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% 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.
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 programs 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. U.S. 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.