Eurozone GDP within the first quarter of 2021 is slipping into recession amid new covid lockdowns

People walk past the closed brasserie Les Deux Magots

LUDOVIC MARIN | AFP | Getty Images

LONDON – The Eurozone Economy was closed in the first quarter of 2021 as countries imposed new bans and restrictions amid a third wave of coronavirus infections.

The gross domestic product in the region fell by 0.6% Quarter by quarter, according to preliminary data from the European statistical office Eurostat.

It’s the second straight quarter of contractions, meaning the region is in a technical recession, despite economists being optimistic about future growth.

Most of the region’s largest economies – Germany, Italy and Spain – saw activity decline in the first three months of the year. The biggest drop in activity was in Portugal, where a wave of new Covid cases has emerged and the country has been locked for the second time.

French surprise

France was an exception. The second largest economy in the euro zone recorded better than expected growth of 0.4% in the first quarter. Although the French economy remains below its pre-Covid level, the growth figures for the second quarter will bring some calming.

France’s consumer spending also rose 0.3% in the first quarter despite the reintroduction of certain Covid restrictions.

French President Emmanuel Macron earlier this week announced a relaxation of measures that would allow cafes, bars and restaurants to offer outdoor services from May 19 – which could contribute to the economic recovery.

Contractions elsewhere

In Germany, however, the economy contracted by 1.7% over the same period. It’s worse than the 1.5% drop asked by Reuters.

The nation has been hard hit by a third wave of Covid infections, and different approaches in its different regions have made fighting the pandemic even more difficult.

In Italy, the latest GDP figures for the quarter showed a 0.4% decline, slightly better than expected.

The Spanish economy also contracted by 0.5% over the same period, while Portugal’s economic activity contracted by 3.3%.

Looking ahead, however, economists are optimistic for the euro zone in 2021.

“Confirmation that the eurozone economy contracted again in the first quarter (first quarter) means the region has suffered a second technical recession in just over a year,” Capital Economics analysts said via email.

“The good news, however, is that things should get better towards the end of the second quarter as the vaccination program will allow governments to hopefully lift restrictions for the last time.”

Stimulus and vaccines

Countries in the region are expected to receive EU-wide Covid support funds in the second half of the year. Several nations have already submitted their plans for how they will use the funds for the analysis by the European Commission.

“It is important that the plans are in line with our goals,” said European Commission’s commercial chief Valdis Dombrovskis on CNBC’s “Street Signs Europe” on Friday.

The Brussels-based institution urged nations to spend at least 37% of the impetus on climate policy and 20% on digital transformation.

“The funds will be available to Member States once they have reached certain milestones and targets,” he added.

In addition, the vaccination campaign has accelerated significantly since early 2021, which also increases growth expectations for the region.

The European Union expects 70% of the adult population to be vaccinated this summer and the tourism-dependent countries hope that more vaccinated people will allow them a more successful summer season this year.

“Vaccination is picking up speed,” said Dombrovskis, despite an initial slowdown in rollout because AstraZeneca had “delivered too little”.

The pharmaceutical company that developed a Covid vaccine has failed to meet EU expectations for vaccine delivery. The region expected 120 million doses in the first quarter, but only about 30 million were dispensed. For the second quarter, the EU was expecting 180 million cans, but AstraZeneca has already announced that it will only ship around 70 million.

The Commission filed a lawsuit against the pharmaceutical giant last Friday, and a Brussels court has already started examining the case, which could be closed as early as June.

AstraZeneca wasn’t immediately available for comment when CNBC reached out on Friday.