EU enters recession again and breathes economy against USA and China

The European Union once again underwent economic recovery and entered recession in the first quarter of this year. The drastic restriction measures imposed to curb the European winter Kovid-19 fingering wave dragged the euro area economies down 0.6% in relation to the previous quarter, with a decrease in gross domestic product (GDP). The figures were estimated by the statistical body Eurostat on this Friday. The drop, drawn by Germany, was 0.4% for the European Union (including countries not adopting the euro). With the recovery plan still in force, the European Union is breathing down and pursuing two quarters of declining GDP, unlike the United States and China, whose growth accelerated at the beginning of the year. In addition, the new break puts more pressure on countries to keep the rules suspended in 2022.

It took the Chinese economy a few months before the epidemic to recover GDP. The United States has achieved almost the same due to progressive social and economic openness and fiscal stimulus, although analysts predict the biggest eruption is now about to take place. On the other hand, the European Union has lagged behind. Rigid sanctions in Germany and harsh climatic conditions in the south of the continent have lost EU partners in red numbers and once again compared to their main world competitors.

Brussels had already stated in its February economic forecasts that Europe must undergo purification before emerging. The Commission pointed to a contraction of 0.8% of GDP for the EU and 0.7% in the euro area, so in fact the actual behavior of EU economies turned out to be better than expected. From now on, according to forecasts, the economy should recover, to expand more strongly in the European summer, in the third quarter, when the pace of the vaccination process should allow a “significant” return, though “limited”, to the tourism sector . Southern Europe.

The collapse of the economy in Germany (-1.7%) accounts for part of this effect. European locomotives were punished by measures of imprisonment, a harsh winter for construction, and events in supply chains. But two other major economies also declined: Spain (-0.5%) and Italy (-0.4%). And with them are Portugal (-3.3%), Latvia (-2.6%) and Czech Republic (-0.1%). This surprise comes from France and Belgium, who, despite draconian anti-measures implemented by their governments, achieved an expansion of 0.4% and 0.6% of GDP respectively at the beginning of the year.

Optimism for the second half

With these figures, Brussels leaves the recovery process in neutral by the second half of the year. Until then, the vaccination process should allow the most leisure and culture-bound areas to continue to heal their pulse. “Another slight decline for the European economy in the first quarter. But the recovery is going on and it will be strong in the second half of the year, thanks to the fund as well The next generation E.U.“, The European Union’s Commissioner of Economy (Minister), Paolo Gentiloni, said via his Twitter account. According to Bert Collijn, an ING economist for the euro zone, activity has already started recovering. “Small measures of flexibility in sanctions have had a very strong impact on consumption, meaning consumers feel eager to spend on reopening,” he says.

European companies also believe that the recovery is yet to come. Thus, indicators on the economic sentiment (ESI) published by the European Commission, at least for the month of April, show that business confidence is once again on the rise before the outbreak of the pandemic, especially in the industrial sector. The rapid recovery of China and the United States benefits. In addition, according to Eurostat, inflation rose again and peaked at 1.6% in April.

In any case, Europe is moving towards economic recovery by dragging its feet, which puts more pressure on Brussels to activate the gear of the Recovery Fund. Paris, Madrid, Rome and Lisbon are impatient after spending six months negotiating their plans. The European Central Bank and the International Monetary Fund also demand immediate progress. Meanwhile, the Commission recalls that there are still eight countries pending to ratify the agreements that would allow them to enter the debt markets. Most optimists believe that the first delivery of a large package of 750 billion euros (4.9 trillion regis) will begin in July. The most pessimistic believe that this will only happen in September.

The next stop, however, is the decision to drop or activate the general escape clause, which in practice suspends tax rules. Southern Europe calls for this relief so that it can continue to deliver oxygen to its economies, keep companies affected by the epidemic and save jobs. For now, the unemployment rate is under control, at 8.1% across the European Union, just eight tenths higher than a year ago. Brussels wants to keep its mouth open, but Berlin asks to see the economic forecast for the first year. The new numbers may double the potential austerity of some hawkers.