Business News: European economy shrinks in first quarter while US rolls over.
The European economy contracted by 0.6% in the first three months of the year as slow vaccine introductions and prolonged lockdowns delayed the hoped-for recovery. The contraction in the 19 countries using the euro confronts a robust rebound in the United States. Growth data announced on Thursday showed that the United States grew 1.6% during the first quarter, with activity buoyed by strong consumer demand. On an annualized basis, the United States grew 6.4%.
The second consecutive quarter of declining production, after the contraction in the fourth quarter of 2021, confirms the double pandemic recession in Europe. Two quarters of the drop in production is a definition of a recession. France showed unexpected growth of 0.4% compared to the previous quarter, while the main negative surprise came in Germany, the largest economy on the continent. Business fell 1.7% more than expected as the manufacturing sector was hit by the disruption of component supplies in addition to the hit to services and travel from activity restrictions linked to the pandemic.
French authorities expect the outlook for COVID-19 in the country to improve next month, when a larger percentage of the population is vaccinated. The government is slowly starting to lift the partial blockades, despite the still high number of coronavirus cases and hospitalized COVID-19 patients. President Emmanuel Macron said Thursday that the outdoor terraces of French cafes and restaurants will be able to reopen on May 19 along with museums, cinemas, theaters and concert halls under certain conditions.
Concern about a potential second season of missed holidays has clouded the prospects for the Mediterranean countries Italy, Spain and Greece, which are heavily dependent on tourism. Greece lifted quarantine restrictions for visitors from EU countries and will allow the reopening of restaurants and cafes for outdoor service from May 3. Travel revenue dropped 75% last year.
Economists said they expected a recovery in the coming weeks as vaccinations accelerate. The International Monetary Fund expects growth of 4.4% for the euro area for the whole year. So far, the unemployment rate in Europe has only gradually increased to 8.1% in March, thanks to extensive layoff support programs that help companies retain workers. The United States saw its unemployment rate drop to 6.0% after reaching 14.8% during the worst pandemic.
One factor in Europe is a slow introduction of the vaccine and prolonged blockages. Another is the government’s lower support for the economy. US President Joe Biden’s $ 1.9 billion aid package, along with spending from Previous support efforts, according to UniCredit bank economists, will mean additional cash support of around 11-12% of annual economic output for this year. By contrast, the European fiscal stimulus amounts to around 6% of gross domestic product.