European economic downturn in first quarter

European economic downturn in the first quarter

The European economy contracted 0.6% in the first three months of the year as slow vaccine launches and lengthy lockdowns delayed a hoped-for recovery – underscoring how the region is lagging other major economies in recovering from the coronavirus pandemic.

The decline in production in the 19 countries that use the euro currency was less than the 1% decline expected by economists, but it lagged far behind the recovery in the US and China, two other pillars of the global economy.

Export-dependent Germany, which was already approaching a recession with the decline in manufacturing before the pandemic, shrank by 1.7 percent, most of all in Europe. The economies of Spain, Italy and Portugal also contracted.

Much of Europe is slowly battling a third wave of coronavirus infections with its first vaccine introduction. Germany has a night curfew in 15 of its 16 federal states. For shopping, appointments must be booked and a negative test carried out.

France recorded unexpected growth of 0.4% quarter-on-quarter, while Germany, the continent’s largest economy, recorded the biggest negative surprise. Activity there contracted by more than expected 1.7% as manufacturing was hit by an interruption in parts supplies in addition to the impact on services and travel due to pandemic activity restrictions.

The French authorities believe that the outlook for COVID-19 will improve over the next month if a larger part of the population is vaccinated. The government is slowly starting to lift partial lockdowns despite still high numbers of coronavirus cases and COVID-19 patients in the hospital.

President Emmanuel Macron said Thursday that the outdoor terraces of French cafes and restaurants will be allowed to reopen on May 19, along with museums, cinemas, theaters and concert halls under certain conditions.

Concerns about a possible second lost holiday season in a row have clouded prospects for the Mediterranean countries of Italy, Spain and Greece, which are heavily dependent on tourism. Greece has lifted quarantine restrictions for visitors from EU countries and will allow outdoor restaurants and cafes to reopen from May 3. Travel income there fell by 75% in the past year.

While the outlook for European countries looks better, some on the periphery may have more trouble bouncing back. According to a recent analysis by ING Bank, tourism-dependent countries such as Greece, Italy and Spain could suffer more sustainably from lockdowns.

The European Union is in the process of finalizing a plan for a so-called “vaccination pass” system so that some tourism can return this summer. But normality still seems a long way off.

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