Agência para o Investimento e Comércio Externo de Portugal


Euro Area: Second release confirms GDP contracted again in Q1 amid tighter lockdowns.

A second reading confirmed that the Euro area economy shrank a seasonally-adjusted 0.6% from the previous quarter in Q1 2021 following Q4 2020’s 0.7% drop, matching the preliminary release. Compared with the same quarter of the previous year, seasonally-adjusted GDP fell 1.8% in Q1—a softer decline than Q4 2020’s 4.9% drop.

The quarterly decrease came as Covid-19 containment measures were tightened throughout the currency union, which again weighed on business activity, especially in the services sector, and on household spending. In terms of individual countries, Germany’s economy shrank 1.7% over the previous quarter, Spain’s GDP dropped 0.5% and Italy’s economy contracted 0.4%. Bucking the trend, France’s economy expanded 0.4%.

Looking ahead, the economy should grow robustly this year, with activity boosted by the rollout of vaccines and the gradual easing of restrictions. Unleashed pent-up spending amid expansionary fiscal and monetary policies, the disbursement of EU recovery funds and reviving foreign demand will support growth. However, downside risks stem from pandemic-related uncertainty, rising public debts and banks’ bad loans.

More comprehensive results for Q1 are scheduled to be released on 8 June.

FocusEconomics Consensus Forecast panelists see the economy expanding 5.3% in 2021, which is down 0.2 percentage points from last month’s forecast. In 2022, GDP is seen increasing 2.9%.