Euro Area: GDP contracts again in Q1 amid tighter lockdowns

Euro Area GDP Q1 2021

Euro Area: GDP contracts again in Q1 amid tighter lockdowns

The Euro area economy shrank a seasonally-adjusted 0.6% from the previous quarter in Q1 2021, broadly matching Q4 2020’s 0.7% drop and slightly beating market expectations of a steeper contraction. Compared with the same quarter of the previous year, seasonally-adjusted GDP fell 1.8% in Q1—a softer decline than Q4 2020’s 4.9% drop.

The quarterly decrease came as Covid-19 containment measures were tightened throughout the currency union, which again weighted on business activity, especially in the services sector, and on household spending. In terms of individual countries, Germany’s economy shrank 1.7% over the previous quarter, Spain’s GDP dropped 0.5% and Italy’s economy contracted 0.4%. Bucking the trend, France’s economy expanded 0.4%.

Looking ahead, the economy should grow robustly this year, amid the rollout of vaccines and the gradual easing of restrictions. Unleashed pent-up spending amid expansionary fiscal and monetary policies, the disbursement of EU recovery funds and reviving foreign demand will support growth. However, downside risks stem from pandemic-related uncertainty, rising public debts and banks’ bad loans.

As highlighted by Bert Colijn, senior eurozone economist at ING:

“The view on the eurozone economy is pretty poor at the moment in comparison to the U.S. with another technical recession, vaccinations lagging, later reopenings and weaker fiscal support for 2021. Still, it looks like the fate of the eurozone economy is about to turn as domestic demand is set for a strong rebound when economies reopen and the manufacturing recovery seems to only be limited by its own supply at the moment. While late out of the starting blocks, the eurozone is set for its start to the pandemic rebound.”

More comprehensive results for Q1 are scheduled to be released on 18 May.

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