Vaccine delays left economy lagging behind the US

The Eurozone went into a double-dip recession in the first quarter of 2021 with most of the established economies across continental Europe contracting, as output shrank.

The double-dip recession highlights the cost of slow coronavirus vaccinations that have left many Eurozone economies lagging far behind the United States. Economists say the feeble economic data show the importance of accelerating inoculations and getting the bloc’s €800 billion (US$968 billion) joint recovery fund under way as soon as possible.

The Eurozone economy operated roughly 5.5 per cent below its pre-pandemic level in Q1, as economic output in the Eurozone shrank 0.6 per cent in the three months through March, after a decline of 0.7 per cent at the end of 2020. Germany, Italy and Spain all contracted, while French growth was clouded by the fact that the government there was forced to reimpose virus restrictions earlier this month.

In contrast, the American economy has expanded for three straight quarters, accelerating at the start of this year. Vaccinations, job growth and two rounds of federal stimulus payments combined to supercharge household spending in America, which climbed at the second-fastest pace since the 1960s.

The Eurozone should soon start its own rebound, which was the message from European Central Bank (ECB) Chief Economist Philip Lane on Thursday. He said the bloc is at an “inflection point”, noting that the economy won’t reach its pre-pandemic size until mid-2022, a full year behind the US.

Philippe Ledent, an economist at ING Groep NV, opined that, “if you add together the divergence in terms of the pandemic, vaccinations and fiscal support, the euro area is still a bit stuck while others are clearly exiting the crisis”.

He emphasised that, “I don’t want to be particularly negative for the Euro area, there will be a recovery but it’s important that the euro zone isn’t always behind”.

Ledent acknowledged that vaccination programmes are picking up speed and as older age groups get inoculated, the expectation is that the pressure on health services will begin to ease, allowing governments to start gradually lifting restrictions later this quarter. Germany’s economy, the region’s largest, highlights the woes that are afflicting the euro zone.

Not only is the country in the midst of a strict lockdown, but the so-far resilient manufacturing sector is being hit by worsening supply bottlenecks. The economy shrank by 1.7 per cent, which was worse than economists forecast.

France performed better than expected

France, the second-biggest economy, performed better than expected but has now been forced into re-imposing another lockdown, this time for an entire  month. That includes closing schools, nurseries, and non-essential stores, and restricting travel between regions.

Signs of a nascent upturn were evident in some of yesterday’s data. Eurozone unemployment fell in March and Spanish retail sales surged. The region is making progress on its recovery fund, with governments submitting spending plans this week for approval by the European Commission.

Still, the fundraising needs to be ratified by all 27 member states of the Eurozone and disbursements won’t start until the summer. This is raising concern in some quarters that the region is moving too slow in rebuilding.

French Finance Minister Bruno Le Maire said this week that the EU has “lost too much time” compared to the US and China. However, the ECB has insisted that economic uncertainty, particularly over jobs, will keep underlying inflation subdued for a while.

It has ramped up the pace of its bond-buying programme to shield the region from higher global borrowing costs that are spilling over from the faster US recovery.