Europe's economy shrinks in first quarter as US rolls ahead

Figures show Europe's economy contracted in the first three months of the year

The fall in output for the 19 countries that use the euro currency was smaller than the 1% contraction expected by economists but still far short of the rebound underway in the United States and China, two other pillars of the global economy.

Figures announced Thursday showed the U.S. economy grew 1.6% during the first quarter, with business supported by strong consumer demand. On an annualized basis, the U.S. grew 6.4%.

In Europe, it was the second straight quarter of falling output, meaning the region fell back into a recession despite a rebound in growth from July to September of last year. The latest data covers the quarter that ended March 31 and economists say the economy is on the verge of an upswing.

France showed unexpected growth of 0.4% compared to the quarter before, while the main negative surprise came in Germany, the continent's largest economy. Activity there shrank by a larger-than-expected 1.7% as the manufacturing sector was hit by disruption of parts supplies on top of the hit to services and travel from pandemic-related restrictions on activity.

Worry about a potential second straight lost vacation season has clouded the outlook for Mediterranean countries Italy, Spain and Greece, which rely heavily on tourism. Greece has lifted quarantine restrictions on visitors from EU countries and will allow restaurants and cafes to reopen for outdoor service from May 3. Travel receipts there sank 75% last year.

Economists said they expected an upturn in the coming weeks as vaccinations accelerate. The International Monetary Fund forecasts growth of 4.4% for the eurozone for all of this year.

“Today’s GDP data for the first quarter suggests a fair resilience of the bloc’s economy and sends encouraging signs surrounding the near-term outlook,” said economist Maddalena Martini at Oxford Economics.

Katerina Grapsa, owner of a decorative items shop in Athens, expressed optimism as she arranged her wares including candles for Orthodox Easter, which is Sunday.

Andreas Iosifidis, egg vendor at the Athens produce market, said that “it is better because last year was unprecedented. This year, it is coming to an end a little, and we are used to it, and we get out shopping.”

Thus far, Europe's unemployment rate has increased only gradually to 8.1% in March, thanks to extensive furlough support programs that help companies keep workers on. The US saw its jobless rate fall to 6.0% after spiking as high as 14.8% during the worst of the pandemic.

A major factor holding back the recovery in Europe is the slow vaccine rollout, which has led to prolonged lockdowns. Another is less fiscal support for the economy from new government spending. U.S. President Joe Biden's $1.9 billion relief package, coupled with spending from earlier support efforts, will mean additional cash support of about 11-12% of annual economic output for this year, according to economists at UniCredit bank. By contrast, the European fiscal stimulus amounts to about 6% of gross domestic product, even after Europe's more extensive social safety net is factored in.

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Associated Press journalists Srdjan Nedeljkovic and Lefteris Pitarakis contributed from Athens.