Eurozone economy falls back into recession
The eurozone’s economy has fallen back into recession as the impact of the pandemic continues to hit activity.
Reuters reports that the eurozone economy is now in a double-dip recession amid lockdown restrictions due to a resurgence in coronavirus cases, according to a Reuters poll of economists, who said the risks to their already weak outlook was skewed more to the downside.
Europe’s economies have been set back by a renewed surge in infections this year and Covid-related restrictions. Given delays to the European Union’s vaccine roll-out and concerns about new coronavirus variants supporting current lockdowns, stalled economic activity and rising unemployment pose a serious threat to any expected recovery.
Only last month the economy was predicted to make a sharp recovery and grow 0.6% this quarter after shrinking 0.7% in Q4.
But those views turned sour in the Feb. 8-11 poll of over 75 economists as a spike in COVID-19 cases necessitated renewed restrictions on economic and social activity, and a recession was back on the cards.
The eurozone economy was forecast in the latest poll to contract 0.8% this quarter. That was after GDP in the euro area contracted in the first two quarters of last year – making current expectations a double-dip recession.
Over three-quarters, or 28 of 36 economists responding to an additional question, said the risks to their growth outlook were skewed to the downside.
“With lockdowns extended into the new year, it really feels like it is darkest before dawn in the euro zone. In the first quarter, GDP is all but certain to contract again and the question is now by how much,” said Marcel Klok, senior economist at ING.
“The combination of lockdowns and vaccinations will allow for more substantial reopening of economies over the course of the second quarter. This will then also mark the start of the recovery of the euro zone economy.”
The BBC reports that there were some specific factors that may have affected Germany. The economy was stung by a value added tax (VAT) hike which led to a fall in spending and construction. A temporary VAT cut in Germany – intended to support the economy during the pandemic – came to an end at the turn of the year.
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