European authorities will release data on Friday that are widely expected to show another economic downturn in the first three months of the year as the ongoing pandemic has led governments to extend lockdowns.
A day after the United States announced that its economy had grown 1.6 percent over the same period – a robust annual rate of 6.4 percent – the expected European contraction shows a contrast of happiness on opposite sides of the Atlantic.
Driven by dramatic public spending to stimulate growth and a rapid surge in vaccination rates, the United States – the world’s largest economy – expanded rapidly in the first few months of 2021. At the same time, the 19 nations that share the euro currency were likely trapped in the second part of a so-called double-dip recession, due to far less aggressive stimulus spending and botched vaccine security efforts.
However, economic growth is a snapshot of the past and the last few weeks have shown encouraging signs that Europe is on the mend. The alarming spread of Covid-19 in large economies like Germany and France has started to move downwards, factories have revived production while more and more people are out and about in cities.
The initial lockdowns last year penalized European economies and brought much of business to a standstill. However, the current restrictions are calibrated to allow a better understanding of the spread of the virus. Instead of closing their doors all the way, restaurants in some countries serve meals on terraces or place take-away orders. Roofers, joiners and other craftsmen have resumed their work as long as they can stay outside.
“We have learned to deal with the pandemic,” said Dhaval Joshi, chief strategist at BCA Research in London. “We adapt.”
Vaccination rates are increasing across Europe, a trend likely to be driven by the recent European Union agreement to secure Pfizer’s doses.
By depriving households of money to spend, the pandemic has resulted in savings – money that can enter businesses when fears of the virus subside.
Most economists and the European Central Bank assume that the euro zone will expand rapidly in the further course of 2021 and achieve growth of more than 4 percent for the year as a whole.
Even in the most hopeful scenario, Europe’s recovery is lagging behind the United States, reflecting their different approaches to economic trauma.
Since last year, the United States has allocated additional public spending equivalent to 25 percent of its national economic output to pandemic-related stimulus programs and aid programs, according to the International Monetary Fund. That is 10 percent in Germany.
But Europe also started the crisis with far more extensive social safety nets programs. As the United States directed cash to those who were pushed back by the pandemic, Europe limited spikes in unemployment.
“Europe has more insurance systems,” said Kjersti Haugland, chief economist at DNB Markets, an Oslo investment bank. “You don’t fall as hard, but you also don’t bounce off as hard.”