Double Dip

A rather glaring transatlantic divide opened up in the first quarter, as the eurozone succumbed to a double-dip recession even as the US economy powered along, fueled by stimulus and aggressive vaccination rollout.

Economic activity across the pond shrank 0.6% QoQ in the first three months of 2021, Eurostat said Friday (figure below). That followed a 0.7% contraction in Q4.

“The first quarter has been another disappointment in the eurozone as lockdowns were extended pretty much throughout the first three months of the year,” ING said. “With a decline of 0.6%, the eurozone has gone through its second technical recession during the pandemic.”

So, to recapitulate, the pandemic spans five quarters. Europe has been in recession for four of them.

Part of the problem was the fraught nature of the vaccine rollout. If you think coordinating vaccinations for 300 million Americans living in different states and harboring sometimes wildly divergent views on the relative wisdom of getting a vaccine is a monumental logistical feat, just imagine how difficult that same task is when you’re talking about nearly two-dozen different countries. The controversy surrounding the Astra shot didn’t help.

Beyond that, the usual roadblocks to fiscal coordination held up a bloc-wide bailout package. The jointly-guaranteed recovery fund is a good idea. But a vision without action is just a dream. The ECB’s Philip Lane projects the eurozone won’t recover pre-pandemic levels of output until midway through next year. As noted in “Pyrrhic Victories,” the US is nearly there already.

Germany on Friday said its economy (the bloc’s largest) contracted a worse-than-expected 1.7% during the first quarter (figure below).

“After the German economy had recovered slightly in the second half of 2020, the coronavirus crisis caused another decline in economic performance at the beginning of 2021,” the German statistics office lamented. “This affected household consumption in particular, while exports of goods supported the economy.”

The country-by-country breakdown (or what was available on Friday, anyway) showed France managed to hold up better. The French economy eked out an expansion (figure below).

“Growth [in France] is certainly picking up, as the third lockdown did not weigh as heavily on the economy as the previous ones,” ING remarked, before cautioning that “the country’s health situation is still very mixed, as are the components of aggregate demand and the sectoral activities.”

I could go on, but you get the point: Europe is lagging severely behind the US.

Real-time indicators paint a slightly more upbeat picture, but the road ahead is long and littered with potholes. Bloomberg noted Friday that although “the region is making progress on its recovery fund… the fund-raising needs to be ratified by all 27 member states, and disbursements won’t start until the summer.”

That kind of delay due to the necessity of obtaining consensus at the cost of growth (and, depending on the context, at the cost of lives) probably seems ludicrous to China, which waved goodbye to an epidemic that began on its soil several quarters ago. I’m not advocating autocracy. I mention this only to underscore points made this week by Joe Biden. Autocracy, for all its many flaws, can be efficient. In some cases, efficiency means carrying out wholly nefarious activities in a brutally calculating fashion. But in others, it means rubber-stamping initiatives that accelerate growth (sometimes at any cost) and enforcing things like mask mandates using an implicit and very credible threat. (“Oh, you’ll wear that mask. Because you know what happens if you don’t.”)

Speaking of China, PMIs for April were lackluster, albeit still in expansion territory. The official manufacturing gauge printed 51.1 versus consensus of 51.8. The non-manufacturing gauge came in at 54.9 versus the 56.1 the market wanted to see. The Caixin manufacturing gauge printed 51.9.