EU Economy Cratered in 2020, and the Start of 2021 Isn’t Much Better

The pandemic caused severe economic pain around the world, but many developed nations, including the U.S. were able to bounce back a bit by the end of last year and look to grow in 2021. The same can’t be said for the countries in the eurozone.

The eurozone economy dropped by 0.7% in the final quarter of 2020 as governments stepped up social restrictions to contain the second wave of Covid-19 infections, Europe’s statistics office said on Tuesday.

A preliminary reading points to an annual GDP contraction of 6.8% for the euro area in 2020, compared with a 3.5% drop in the U.S.

The region had experienced a growth rate of 12.4% in the third quarter as low infection rates at the time had allowed governments to partially reopen their economies.

However, the health emergency deteriorated in the last three months of 2020, with Germany and France going as far as reintroducing national lockdowns. The tightening of the social restrictions weighed on the economic performance once again.

Data released last week showed that Germany grew 0.1% in the final quarter of 2020. Spain experienced a GDP growth rate of 0.4% in the same period while France contracted by 1.3%. The numbers came in above analysts’ expectations and suggested that some businesses had learned how to cope as best as possible with lockdowns.

Joseph Little, global chief strategist at HSBC Global Asset Management, said in an email that the latest GDP figures confirmed a “double-dip recession in Europe at the end of 2020.”

“The live question for investors is what the delays in vaccine distribution and virus trends mean for the growth outlook as we go through the year. We think the picture should improve through the summer, and that facilitates a “catch-up” phase of growth for Europe in the second half (of 2021),” he added.

In this context, the International Monetary Fund has lowered its growth expectations for the euro area in 2021. The Fund last week cut its growth forecast for the region by 1 percentage point to 4.2% this year. Germany, France, Italy and Spain — the four largest economies in the eurozone — all saw their growth expectations slashed for 2021.

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  1. Roger Taylor

    In 1972 when Ted Heath railed us into the then EEC it had about 25% of the world markets. This is, at a guess, now dropping below 15% of world trade as the India’s, Brazils and (naturally) China all forge ahead with trade through fair means or otherwise. If the EU was still a trading block instead of a political union using failed domestic politicians (hand picked and not elected) to make policy and pass restrictive laws then indeed, it could trade on the world market effectively. Unfortunately, and I hope it happens before I leave this world, it requires the end of this self-serving, anti-democratic and restrictive union before the EU economies will once again thrive.

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