Europe’s major economies outstrip gloomy forecasts in fourth quarter – Financial Times


Three of Europe’s largest economies slowed by less than expected in the final quarter of last year, despite fresh measures to contain the coronavirus pandemic that restricted activity by consumers and businesses.

The German and Spanish economies both defied fears that they would shrink in the final three months of last year, growing by 0.1 per cent and 0.4 per cent from the previous three months respectively, according to official data published on Friday.

While the French economy shrank 1.3 per cent in the final quarter, it still did better than the 4 per cent quarterly contraction expected by economists polled by Reuters and was ahead of the government’s revised forecasts. 

However, the stuttering pace of the three countries’ recovery from the initial economic impact of the pandemic prompted some economists to predict that the eurozone still risks sliding into a double-dip recession this winter. 

“The disappointing vaccine rollout so far, the extension of restrictions in many European countries and the latest data now point to continued weakness in the eurozone over the coming months,” said Nicola Nobile, economist at Oxford Economics.

The latest European figures compare with GDP growth of 1 per cent in the US and 6.5 per cent in China in the fourth quarter, underlining how Europe has been hit harder by the spread of the virus and is expected to recover more slowly than the world’s two biggest economies.

China grew 2.3 per cent over the course of last year, while the US shrank 3.5 per cent. In comparison, Europe suffered a deeper recession, with GDP falling 5 per cent in Germany over the course of the year, and by 8.3 per cent in France and 11 per cent in Spain — all postwar records.

The European Central Bank forecast last month that eurozone GDP would shrink 2.2 per cent in the fourth quarter, leading to a decline of 7.3 per cent over the whole year. Fourth-quarter GDP figures for the eurozone will be published on February 2.

Germany’s Federal Statistical Office said the “recovery process slowed due to the second coronavirus wave and another lockdown imposed at the end of the year. This affected household consumption in particular, while exports of goods and gross fixed capital formation in construction supported the economy”.

The prospects for the German economy have worsened since the government tightened and extended its lockdown in recent weeks. The government this week cut its forecast for this year’s growth from 4.4 per cent to 3 per cent, pushing back the point at which the economy will recover to its pre-pandemic size from early next year to mid-2022.

The French statistics agency said consumer spending fell 5.4 per cent in the final quarter, but investment grew 2.4 per cent as businesses were far less disrupted by the country’s second lockdown than the first. Foreign trade made a positive contribution as exports rose 4.8 per cent, while imports were up 1.3 per cent. 

Jessica Hinds, economist at Capital Economics, said France’s better than expected performance reflected “both the fact that the autumn’s measures had a narrower focus and also that households and firms have been better able to adapt to the restrictions”.

However, the French government is considering whether to impose another lockdown as coronavirus infections remained stubbornly high at the start of this year. Finance minister Bruno Le Maire has warned that another lockdown will result in the French economy missing its forecast of 6 per cent growth this year.

Spain’s 0.4 per cent growth in the fourth quarter was down from a 16.4 expansion in the previous three months, official Spanish data showed. But the reading was much better than the 1.5 per cent contraction forecast by economists polled by Reuters and it was driven by growth in household and government consumption, while investment shrank.

The Spanish economy was hit particularly hard by the pandemic because of its large tourism sector, which was shut for most of last year.

Separate data also published on Friday showed that Austria’s economy shrank 4.3 per cent in the fourth quarter, hit by a sharp drop in consumer spending after the country imposed a lockdown. There was a more upbeat picture in Belgium, where the economy grew 0.2 per cent from the previous three months.


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