Economic reports released on both sides of the Atlantic this week painted very different pictures of how the United States and Europe are recovering from the pandemic. The lesson: Along with vaccines, it pays to unleash enormous amounts of public money in the face of a livelihood-destroying health crisis.
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Europe provided less relief and ended up in a so-called double-dip
recession in the first three months of the year, a reality confirmed Friday by an official estimate showing that the eurozone economy contracted by 0.6%.
That came a day after the United States disclosed that its economy expanded by 1.6% over the same period after substantial public expenditures aimed at stimulating growth.
The
recession in the 19 nations that share the euro currency reflects far less aggressive stimulus spending and a botched effort to secure vaccines that has left many major economies contending with continued restrictions on daily life.
“It’s quite hard to see growth when most European countries are still facing restrictions,” said Ángel Talavera, lead eurozone economist at
Oxford Economics in London. “The U.S. is going to grow more this year. The sheer amount of fiscal stimulus is going to create a boom.”
Still, economic growth figures are a snapshot of the past, and recent weeks have produced encouraging signs that Europe is already on the mend. The alarming spread of the coronavirus in major economies like Germany and France has moderated, while factories have revived production.
Growing numbers of people are traveling through European cities and eager to spend money saved while they were sequestered at home during the worst of the pandemic — and that may presage a mighty surge of consumption as life returns to some semblance of normalcy.
“We are already where the arrows have pointed up once again,” said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Oslo, Norway.
The German economy diminished by a sharp 1.7% from January through March, but that was better than anticipated, prompting some economists to forecast a speedier recovery in Europe’s largest economy.
Italy and Spain slipped by much smaller magnitudes — 0.4% in Italy and 0.5% in Spain. France grew by a modest 0.4%, though its prospects face a fresh challenge in the form of new pandemic restrictions imposed in April by the government.
The initial lockdowns last year punished Europe’s economies, bringing large swaths of commercial life to a halt. But the current restrictions are calibrated to reflect improved understanding of how the virus spreads. Rather than closing their doors altogether, restaurants in some countries are serving meals on patios and dispensing takeout orders. Roofers, carpenters and other skilled trades have resumed work, as long as they can stay outside.
“We have sort of learned to live with the pandemic,” said Dhaval Joshi, chief strategist at BCA Research in London. “We are adapting to it.”
Vaccination rates are increasing throughout Europe, a trend likely to be advanced by the European Union’s recent deal to secure doses from Pfizer.
Most economists and the European Central Bank expect the eurozone to expand rapidly over the rest of 2021, yielding growth of more than 4% for the full year.
Still, even in the most hopeful scenario, Europe’s recovery is running several months behind the United States, a reflection of their differing approaches to economic trauma.
Since last year, the United States has deployed extra public spending worth 25% of its national economic output toward pandemic-related stimulus and relief programs, according to the International Monetary Fund. That compares to 10% in Germany and less in France, Italy and Spain.
To a substantial degree, the U.S. recovery has been propelled by stimulus checks from the federal government that have been spent on cars, furniture, exercise equipment and other large purchases. U.S. spending on these so-called durable goods increased by an annualized rate of 41% over the first three months of 2021.
The nations of the European Union — which includes the eurozone plus eight other countries — are now debating proposals to distribute funds from a pandemic rescue fund of 800 billion euros, or $968 billion. That money should eventually stimulate growth, but the process confronts the typically fractious politics of Europe.
Finland, which tends toward frugality, has held up disbursement with demands for conditions on the use of the money. Further delays threaten to extend the downturn in southern European economies that are especially dependent on tourism, among them Greece, Italy, Spain and Portugal.
Any comparison with the U.S. management of the pandemic must account for the fact that Europe began the crisis with far more comprehensive social programs to aid people in trouble, and then adopted a different approach to minimizing the damage. While the United States directed cash to people who lost incomes, many European countries limited a surge in unemployment by heavily subsidizing wages at companies that agreed to retain their workers through the lockdowns.
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