Having slipped back into recession during the first three months of 2021, the eurozone fell into a “double-dip” recession. At country level, Italy slid back into recession, reporting an economic contraction of 0.4% during the first quarter; in comparison, France posted growth of 0.4% following a fourth-quarter contraction of 1.4%.
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- The IMF expects the eurozone to grow by 4.4% this year
- Germany’s economy contracted by 1.7% during Q1
- The European Parliament ratified the post-Brexit trade deal with UK
Having slipped back into recession during the first three months of 2021, the eurozone fell into a “double-dip” recession. At country level, Italy slid back into recession, reporting an economic contraction of 0.4% during the first quarter; in comparison, France posted growth of 0.4% following a fourth-quarter contraction of 1.4%. Meanwhile, having expanded by 0.5% in the final three months of 2020, Germany’s economy shrank by 1.7% during the first quarter of 2021, partly undermined by the withdrawal of a temporary reduction in the rate of VAT. The International Monetary Fund (IMF) upgraded its forecast for economic growth in the euro area this year from 4.2% to 4.4%, and next year from 3.6% to 3.8%. The Dax Index rose by 0.8% during April, while the CAC 40 Index climbed by 3.3%.
“We are very much at an inflection point” (ECB Chief Economist Philip Lane)
President of the European Central Bank (ECB) Christine Lagarde warned that the risks to Europe’s economy associated with the Covid-19 pandemic remain tilted to the downside in the short term; in the longer term, however, risks to the economic outlook have become “more balanced”.
In an interview, the ECB’s Chief Economist Philip Lane said that the ECB expects a good economic recovery for the eurozone throughout 2021 but warned: “We are very much at an inflection point … the fact that we’re rebounding from the worst of it does not mean there’s a full recovery”. The ECB expects a “slight contraction” in the eurozone’s economic output during the first three months of the year, but sees the economy growing in May and June, and “even more strongly” in the third quarter.
The European Parliament ratified the post-Brexit trade deal with the UK during April. The Trade and Cooperation Agreement (TCA), which was agreed in December, allows tariff- and quote-free trade between the EU and UK. Although the deal was hailed by the UK, European politicians tended towards a different view. Guy Verhofstadt said the agreement was “a failure for both sides but better than nothing”, and Brexit negotiator Michel Barnier commented: “(Brexit) is a warning … And it’s a failure of the EU and we have to learn lessons from it”. Meanwhile, European Commission President Ursula von der Leyen said the agreement comes with real teeth, with a binding dispute settlement mechanism … we will not hesitate to use them if necessary”.
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