Eurozone slips back into recession as US rises

BarcelonaThe eurozone economy returned to recession, after suffering a drop in activity during the first quarter of the year. The fall in the gross domestic product of the countries that share the common currency affected the majority of member states, with the largest economy, Germany, among the main decliners.

Specifically, in the first three months of this 2021, the eurozone as a whole suffered a 0.6% reduction in its GDP compared with the previous quarter, the fourth of 2020, when it had already lost 0.7%. Compared with a year ago, the euro zone experienced a decline in GDP of 1.8%.

Germany, considered the European locomotive, was one of the countries most affected by the new wave of contagions, which meant a decline in its economy of 1.7%, the third strongest drop only surpassed by Portugal and Latvia. In Italy the fall was 0.4% and, among the largest states of the Union, only France closed March in positive, with a quarterly increase in its GDP of 0.4%. Spain also saw its GDP fall by 0.5% during the first quarter.

However, the European authorities, both at the community level and the capitals, expect to close 2021 with growth, especially if at the end of the summer it has been possible to advance the vaccination plan as planned, in order to achieve a 70% immunity of the adult population, which would start a path of no return to recover the situation prior to the pandemic. For example, the German government expects to close this year with a GDP increase of 3.5% over the twelve months as a whole, while the Commission forecasts 3.8% both this year and next year in the case of the Eurozone.

In addition, the EU's statistics office, Eurostat, has reported that inflation in April rose to 1.6% year-on-year in the eurozone, due to the rise in oil and energy prices. However, if energy prices are discounted, the rise was 0.8%, two tenths less than in March.

Contrast with the United States

The European figure contrasts with the United States, which closed the first quarter with its GDP 0.4% higher than a year earlier. In fact, the US economy will surpass pre-pandemic levels of activity this summer, according to analysts' and government forecasts, while the eurozone will have to wait until 2022 and, in the case of Spain and Catalonia, until the beginning of 2023.

There are two reasons why Europe is lagging behind in the recovery compared to the US. On the one hand, the vaccination campaign launched by the American authorities is being much faster than the one coordinated by the European Commission. Brussels has stopped the distribution of vaccines on several occasions to study the risk of thrombosis among those vaccinated, it has had disagreements with the pharmaceutical company AstraZeneca over the conditions of the contracts, and the European Medicines Agency (EME) has taken longer than its American counterpart to approve the use of vaccines.

On the economic front, on the other hand, the strong monetary stimulus provided by central banks on both sides of the Atlantic has been met with a public spending response from President Joe Biden's administration, while in the European Union fiscal stimulus is much lower and, in the case of the EU's Next Generation funds, will not be implemented until the summer. Large public spending at the federal level in the US has been one of the main engines of growth for the economy.