European economy grows 2%, ending double-dip recession

European economy grows 2%, ending double-dip recession

Europe’s economy has rebounded into growth in the second quarter

By DAVID McHUGH AP Business Writer

July 30, 2021, 10:34 AM

• 3 min read

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FRANKFURT, Germany -- Europe emerged from a double-dip recession in the second quarter with stronger than expected growth of 2.0% over the quarter before, according to official figures released Friday, as southern European economies previously hard hit by the pandemic showed surprisingly strong results.

But the economy in the 19 countries that use the euro currency still lagged pre-pandemic levels and trailed the faster recoveries in the U.S. and China, with the delta variant continuing to cast a shadow of uncertainty over the upturn.

The growth figure for the April-June quarter announced Thursday by the European Union's statistics agency Eurostat compared to a drop of 0.3% in the first quarter as the 19 countries that use the euro endured a double-dip recession after a rebound in mid-2020. The second-quarter growth figure was stronger than the 1.5% foreseen by market analysts.

Italy, which saw 128,000 pandemic deaths and a deep recession, was a major positive surprise, growing 2.7% as consumer spending revived. Portugal boomed with 4.9%. Meanwhile growth returned in major economies France, which grew 0.9% compared to the previous quarter, and Germany, which saw growth of 1.5% after a sharp drop of 2.1% in the first quarter. German auto companies in particular have shown strong profits despite a shortage of semiconductor components as global auto markets recover, particularly for the higher-priced vehicles sold by Mercedes-Benz and by Volkswagen's Audi and Porsche luxury brands.

Yet the recovery lags the one in the U.S., where the economy surpassed its pre-pandemic level during the quarter. Friday’s figures leave the eurozone 3% smaller than before the virus outbreak, according to Capital Economics. China was the only major economy to continue growing during pandemic year 2020.

The stronger performance in southern Europe may be the result of stronger spending by households as restrictions are eased, said Andrew Kenningham, chief Europe economist at Capital Economics. Spain, with growth of 2.8% and consumer spending up 6.6%, both illustrated the rebound and underlined how far it has to go. Gross domestic product remains 6.8% below where it was before the pandemic.

Lagging vaccinations held back the European economy in the first part of the year but have made steady progress since. Yet the spread of the more-contagious delta variant has led to predictions that it may slow, though not derail, the economic upturn. Travel and tourism, key for places like Spain and Greece, are recovering but remain subdued.

“Given its reliance on tourism, the Spanish economy looks especially vulnerable to the delta variant that is forcing several regions in the country to impose new restrictions, while foreign governments are discouraging trips to the Iberian Peninsula,” said Edoardo Campanella, economist at UniCredit Bank in Milan.

Officials figures Friday also showed eurozone unemployment at 7.7% in June, down from 8.0% in May. Inflation rose to 2.2% in July from 1.9% in June.

The eurozone economy has been sustained by government spending on pandemic relief including subsidies for companies that keep furloughed workers on the payroll. The European Central Bank is adding monetary support by keeping interest rate benchmarks at record lows and by purchasing 1.85 trillion euros ($2.2 trillion) in government and corporate bonds through at least March 2022. That step drives down longer-term borrowing rates and helps keep credit flowing to businesses and governments.

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