Christine Lagarde, president of European Central Bank. Photo: Michael Brochstein/Sipa USA
COVID-19 restrictions and vaccine scepticism saw economic growth put into reverse in the EU’s first quarter GDP report, with the economy shrinking by 0.6% and jobs taking a 0.3% hit in the euro area compared with the previous quarter.
The eurozone is in the midst of a double dip recession, hit hard by new waves of coronavirus infections.
These declines follow falls in the fourth quarter of 2020 (down 0.7% in the euro area and 0.5% in the EU) after a strong rebound in the third quarter of 2020 (up 12.5% in the euro area and 11.7% in the EU).
These were the sharpest decreases since the time series started in 1995 observed in the second quarter of 2020 (-11.6% in the euro area and -11.2% in the EU).
Chart: Eurostat
“The slow start is not proving to be an insurmountable hurdle – the quickening pace of vaccinations and a sharp rebound in global trade activity has caused the European Commission to forecast a brighter outlook, with 4.2% growth predicted in 2021, up from the 3.7% forecast in February,” said Robert Alster, CIO at Close Brothers Asset Management.
“The risk now is that the North/South divide continues to widen. Germany’s economic growth is not far behind the UK’s, with its vaccination programme set to overtake, whereas Spain’s economy has been hardest hit.
“The Northern countries have benefited from strong manufacturing growth, with the US and China driving global demand, whereas the Southern countries are on tenterhooks to see whether the European tourism season can go ahead.”
Read more: Sterling soars on bumper UK jobs data
The data from Europe comes in contrast to data released in the UK this morning, which painted a more positive picture, in part thanks to the strong rollout of coronavirus vaccines and reopening of the economy.
Companies hired almost 100,000 people last month as Britain’s economy began to reopen leading analysts to say the economy had “turned a corner.”
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