FRANKFURT, Germany – Europe emerged from a double-dip recession in the second quarter with stronger-than-expected 2.0% quarter-over-quarter growth, according to official figures released on Friday, Savings and Large Corporations showed stronger results.
But the economies in the 19 countries that use the common euro currency still lagged pre-pandemic levels and lagged the faster recoveries in the US and China as the highly transmissible variant of the Delta virus cast a shadow which threw uncertainty about the upturn.
The April-June quarter growth figures released by the European Union’s statistics agency Eurostat, compared with a 0.3% decline in the first quarter of 2021 when the euro area countries double-dip after a rebound in mid-2020 -Go through recession. The growth in the second quarter was stronger than the 1.5% expected by market analysts.
Much of the improvement came from southern European countries that had previously been badly hit by major Covid-19 outbreaks and a loss of tourism revenue.
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Italy, which suffered 128,000 pandemic deaths and a deep recession, was a big positive surprise last quarter, growing 2.7% as consumer spending picked up. Portugal boomed with 4.9% growth. Meanwhile, growth in Germany, the largest economy in the EU, returned with a production increase of 1.5% after a sharp decline of 2.1% in the first quarter.
Above all, German car companies, despite a shortage of semiconductor components, achieved high profits in the course of the recovery of the global automotive markets, especially in the higher-priced vehicles from Mercedes-Benz and the luxury brands Audi and Porsche from Volkswagen.
As a further sign of a recovery in activity, the European aircraft manufacturer Airbus this week raised its outlook for deliveries this year.
In the long run, however, the recovery in the eurozone is lagging behind that in the US, where the economy outperformed pre-pandemic levels in the second quarter of 2021, with growth of 1.6% quarter over quarter.
Friday’s numbers leave the eurozone economy 3% smaller than it was before the virus outbreak, according to Capital Economics. China, which was first hit by the coronavirus outbreak, was the only major global economy that continued to grow in the 2020 pandemic year.
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The stronger performance in southern Europe could be due to households increasing their spending when restrictions are relaxed, said Andrew Kenningham, chief economist for Europe at Capital Economics.
Spain, with 2.8% growth and 6.6% increase in consumer spending, illustrates the recovery and how far it still has to go. There, the gross domestic product remains 6.8% below the value before the pandemic.
A slow introduction of vaccinations slowed the European economy in the first few months of the year. But Europe has made steady strides since then, overtaking the US in total population-adjusted vaccination in recent days.
Nevertheless, the spread of the highly contagious Delta variant has led to predictions that it could slow down Europe’s economic recovery, but not let it derail. Travel and tourism are recovering, but will remain subdued.
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“Given its reliance on tourism, the Spanish economy seems particularly vulnerable to the delta variant, which is forcing several regions of the country to new restrictions while foreign governments discourage travel to the Iberian Peninsula,” said Edoardo Campanella, economist at UniCredit Bank in Milan .
Other figures released on Friday showed eurozone unemployment stood at 7.7% in June, up from 8.0% in May. Inflation rose from 1.9% in June to 2.2% in July.
The eurozone economy was propped up by heavy government spending on pandemic aid, including subsidies to companies that keep workers on leave on their payroll.
The European Central Bank is adding monetary support by keeping interest rate benchmarks at record lows and buying government and corporate bonds worth $ 2.2 trillion through at least March 2022. This move lowers longer-term lending rates and helps keep the flow of credit going to businesses and governments.