Europe in recession again as Covid continues to bite

The eurozone and EU economies entered technical recessions in the first quarter of the year, when rising cases of Covid-19 prompted a swathe of countries to extend restrictions on movement and commerce.

Preliminary Eurostat data show that the eurozone economy contracted by 0.6pc and the EU economy by 0.4pc in the first three months of this year. They shrank by 0.7pc and 0.5pc respectively in the fourth quarter of 2020.

"Virus-induced consumption weakness was likely the primary driver of the contraction," said analysts at UK-based bank Barclays. The effect of consumer spending on OECD economies was shown in yesterday's US gross domestic product (GDP) reading, which showed a 4.3pc quarterly rise.

By contrast the European economy has now entered a double-dip recession, as the GDP readings for both the 27-nation EU and the 19-country eurozone areas have been negative since the first quarter of last year aside from the extreme rebound seen in the July-September period of 2020, when the initial phase of lockdowns eased.

Germany, Europe's largest economy, shrank by 1.7pc in the January-March period from the prior quarter, when it grew. The country's statistics office said the pandemic affected household consumption in particular in the first three months of this year, while exports supported the economy. Germany's manufacturing sector expanded at a record rate in March, according to IHS Markit, although the country's refinery output fell notably in the same month.

By Ben WInkley