EU GDP slumps in Q1 as Germany weighs on regional recovery

Author: Tom Brown


LONDON (ICIS)--EU and eurozone GDP slumped quarter on quarter in the first three months of 2021, according to Eurostat data on Friday, with an economic contraction in Germany weighing on the region’s recovery.

First-quarter EU and eurozone GDP slumped 0.4% and 0.6% compared to the closing months of 2020, as momentum slowed for the recovery that began in the second half of last year.

The contraction comes despite bullish purchasing managers’ index (PMI) data from the eurozone private sector that has continued through April on the back of a strong rebound in manufacturing, while the service sector has also gradually ticked back into growth as lockdown measures eased.

Chemicals producers have also largely posted extremely positive year-on-year first-quarter results, on the back of strong pricing and customer restocking, pointing to a private sector recovery that has  continued despite the regional economy sinking back into recession.

Fourth-quarter 2020 GDP fell 0.5% in the EU and 0.7% in the eurozone. The official shift of the region back into recession comes amid steadily rising inflation.

Fortunes were mixed across the region, with several countries including France, Sweden and Belgium all seeing quarter on quarter growth in the first three months of 2021.

Germany saw one of the sharpest contractions during the period at minus 1.7%, causing the country to become “a drag on the whole eurozone” after fuelling growth in the fourth quarter, according to analysts at ING.

More stringent lockdown measures in the country and the expiration of a VAT reduction are likely to have weighed on German economic performance during the quarter, but the top-line numbers obscure how mixed the picture is across different sections of the country’s economy, according to ING.

“The German economy clearly has many, very different, faces right now. Not all of them are properly reflected in today’s numbers,” said ING analyst Carsten Brzeski. “The major theme is one of a continuing and partly growing divergence between the service sector and the manufacturing sector.”

“Strong demand from the US and China has filled order books in manufacturing and driven strong momentum in industrial production - even if production is still below pre-crisis levels,” he added.

The progress of the vaccination programme in the country, as well as a rebounding construction sector and a manufacturing industry that has yet to reach pre-crisis levels, mean that Germany’s economy remains likely to return to the size it was before the onset of the pandemic this year, he added.

“Looking forward, we see activity rebounding steadily this year, in parallel with a strong pick-up in vaccine rollouts and the gradual relaxation of restrictions,” added Oxford Economics economist Maddalena Martini.

Eurozone unemployment stood at 8.1%, Eurostat added, an incremental improvement on the 8.2% seen the previous month.

Front page picture: Germany’s lockdown takes its toll on GDP growh; pictured, an empty square in Cologne in March  
Source: Martin Meissner/AP/Shutterstock

Focus article by Tom Brown