Europe’s Economy Slides Back Into Recession

The European Union’s economy is back in recession. Gross domestic product (GDP) fell 0.4 percent in the first quarter due to the effects of the pandemic, following a decline of half a percent from the fourth quarter. According to Eurostat. The economic downturn was even more pronounced in the euro area, reaching 0.6 percent from 0.7 percent in the last quarter of last year.

Developments in Europe contrast with developments in the United States, where the economy is growing strongly. The strongest economic upturn is expected this year since President Ronald Reagan led the country.

But economists expect that the situation in Europe will soon begin to improve as vaccination progresses. The current progress in Europe is slow compared to the United States and some countries in Asia.

“It’s a little better than expected. Even so, it means a technical recession,” said Bert Colijn, an economist at ING, about GDP growth. Analysts in a Reuters poll predicted that the eurozone economy would fall by 0.8 percent compared to the previous quarter and by two percent year on year. “But basic resilience shows that the economy is ready to start (somewhat belatedly) recovering from a pandemic, which means that the picture of a weak euro area economy should change quickly,” Colijn added. When the closures imposed due to the pandemic are over, a sharp rise in domestic demand is expected.

The European economy is doing worse than the US economy because US President Joe Biden has approved large-scale support programs to get the economy out of the effects of the pandemic as soon as possible. In addition to national programs, Europe also has a recovery fund of 750 billion euros (almost 20 trillion CZK). Still, the distribution of money is stagnant due to disputes over the rules for providing aid.

The recession defines them as two consecutive quarters of economic decline. Year-on-year, GDP across the European Union, fell by 1.7 percent in the first quarter, while in the euro area, it fell by 1.8 percent.

The economic downturn in the union reflects the slowdown in Germany, where the economy fell by 1.7 percent compared to the previous three months. Due to the new wave of coronavirus spread, the country has further closures, which have forced some companies to reduce or close down again. In this context, the AP noted that developments in the first quarter only highlighted how Europe lagged behind other major economies in recovering from a pandemic.

Statistics on the development of GDP in the United States were published this week, which showed that the US economy grew at 6.4 percent per year in the first quarter. If the calculation methodology were applied in the EU, then the US economy would grow by 1.6 percent in the first quarter.

The US president has pushed for a proposal that the economy is injected with $ 1.9 trillion (almost CZK 41 trillion) due to the pandemic. Suppose money is included in expenditures from previous support programs. In that case, this means additional support corresponding to 11 to 12 percent of the annual output of the US economy, economists of UniCredit Bank calculated. In contrast, fiscal support in the EU corresponds to about six percent of GDP.

The most significant decrease from countries for which Eurostat already has data is available in Portugal. Its economy contracted 3.3 percent in the first quarter from the previous three months. Latvia follows it with a decline of 2.6 percent and then Germany. Lithuania, on the other hand, performed best, with the economy growing by 1.8 percent. In Sweden, the economy grew by 1.1 percent.

The overall decline slowed down slightly in France, where GDP rose by 0.4 percent. This is a better result than expected. He was also surprised by developments in Austria, whose economy grew by 0.2 percent, while analysts expected a decline of up to 1.2 percent.

According to preliminary data from the Czech Statistical Office, the economy in the Czech Republic fell by 0.3 percent in the first quarter. This is also a significantly better result than analysts, who estimated a decline of one percent.