Euro Macro: Q1 marked the low for the economy but spare capacity will remain – Eurozone GDP contracted significantly in 2021Q1 (-0.6% qoq), but the outcome was not as bad as had been feared (consensus -0.8%; ABN -1.2%). The main surprise was delivered by France, where GDP expanded by 0.4% (consensus was for zero growth), after it fell by 1.4% in 2020Q4. Germany’s GDP was almost the mirror image of France’s during 2020Q4 and 2021Q1. Indeed, Germany’s GDP expanded by 0.5% qoq in 2020Q4 and, subsequently, dropped by 1.7% in 2021Q1. These differences in the growth patterns of Germany and France reflect the differences in the timing of changes in lockdown measures in the two countries. In France lockdown measures were tightened considerably at the beginning of 2020Q4 and eased again in December of that year, whereas in Germany measures remained largely unchanged until December 2020, when they were tightened considerably. The changes in lockdown patterns between Germany and France is also illustrated by the changes in the components of GDP. Germany has not yet published detailed GDP data but monthly activity data clearly suggests that private consumption declined noticeably in Q1, whereas in France (detailed data have been published) private consumption expanded by 0.3% qoq in Q1 after it fell by 5.7% qoq in 2020Q4. Looking at the other big countries, the outcomes were broadly in line with the expectations. Italy’s GDP contracted by 0.4% qoq in Q1, while Spain’s GDP fell by 0.5% qoq. Compared to pre-pandemic levels (i.e. 2019Q4) eurozone GDP had lost 5.5% in 2021Q1, France’s 4.4%, Germany’s 4.9%, Italy 6.9% and Spain a stunning 9.4%.
Looking forward, the outlook for growth during the rest of this year will remain dominated by the further unwinding of lockdown measures. France has published a detailed roadmap and plans to ease measures considerably in May and June. Italy and the Netherlands have eased measures somewhat at the end of April. Moreover, Greece has announced that it will allow foreign tourist back into the country as from the middle of May onwards if they meet certain health conditions, while France will do the same starting on 9 June. Other countries seem more reluctant and Germany’s federal government has recently tightened its grip on lockdown measures by allowing it to overrule individual state decisions about curfews and school openings. Overall we have assumed that modest easing and tweaking of existing measures will already lift GDP noticeably in Q2 (we have penciled in 0.8% qoq at the moment). Nevertheless, we think that the sharpest rebound in growth will be in Q3, as the bulk of lockdown measures (also on tourism and the leisure industry) will probably be unwound as from June onwards. In any case, we expect eurozone GDP to return to its pre-pandemic level in the second quarter of 2022. However, it will remain well below trend levels of GDP throughout our forecast period, suggesting inflation will remain sluggish over the medium term horizon.