Graeme Wearden 

Eurozone falls into double-dip recession amid pandemic – as it happened

Rolling coverage of the latest economic and financial news
  
  

The Feldherrnhalle at Odeonsplatz in downtown Munich, Bavaria, Germany, last month
The Feldherrnhalle at Odeonsplatz in downtown Munich, Bavaria, Germany, in March Photograph: Lukas Barth-Tuttas/EPA

Closing post

Time to wrap up, after a blizzard of GDP reports and other economic data.

Here’s all today’s stories:

Have a lovely weekend, and perhaps a relaxing Bank Holiday too. GW

FTSE 100 closes, after best month this year

In the City, the FTSE 100 has ended the day 8 points higher at 6970 points, a gain of 0.12% today.

That means it rose around 3.8% in April as a whole, making April the best month since November 2020 (when vaccine success from Pfizer, then Moderna, triggered a major rally).

So far this year, the FTSE 100 has gained almost 8%.

AstraZeneca was the top riser today, up 4.3% after beating sales and profit forecasts this morning.

Barclays was the top faller, down 7%, despite also beating expectations and predicting a surge in UK growth this year. Unlike rivals earlier this week, Barclays did not reduce its overall reserves for bad loans, which perhaps signals some caution.

Europe’s Stoxx 600 closed slightly lower today, but was up around 1.8% for the month.

Germany’s DAX was little changed, while France’s CAC dipped around 0.5%.

Updated

TS Lombard: Eurozone ready for bounce-back

Looking back at the eurozone recession....Shweta Singh of TS Lombard has predicted that the downturn has bottomed out this month, meaning a recovery can begin in May.

She points out that Europe has suffered a sharp downturn from the pandemic:

The drop in economic activity last quarter came on the back of surging new infections and stricter restrictions. With real GDP 5.5% below the pre-pandemic level, EA output losses been some of the largest amongst developed markets.

The decline in economic activity was the steepest in Germany, falling by 1.7% in Q1.

The Italian economy entered a technical recession, declining by 0.4% in Q1, after contracting by 1.8% in the previous quarter. Economic activity also declined in Spain, falling by 0.5% in Q1, following no growth in Q4 2020.

France bucked the trend of falling output, registering a growth of 0.4%, beating expectations. But this is largely due to a sharp fall in economic activity in the previous quarter as France dialled up restrictions ahead of Germany, Italy, and Spain.

But looking ahead, things look brighter, once vaccination rollouts finally accelerate, tourism picks up, and US stimulus spending ripples across the global economy.

Singh explains:

Following a bleak start to the year, the euro area will (re)enter a recovery phase from next month as the pace of vaccination gathers pace and restrictions are dialled back. Pent-up household demand will boost growth as consumers tap into their forced savings.

Tourism should offer a decent tailwind. Fiscal spill overs from a generous fiscal package in the US will also offer support as will the Recovery Fund, which should kick-start later this year. Export orders are buoyant, suggesting more room for growth in manufacturing and exports.

Yet more evidence that the US economy is strengthening: consumer confidence has jumped this month to a pandemic high, according to the University of Michigan’s survey:

The eurozone isn’t doing badly here, either.

Figures released by the EC yesterday showed that business and consumer confidence has recovered strongly in April, rising over its pre-pandemic levels.

Updated

Chicago Business Barometer highest since 1983

Oof! Economic activity in the Chicago region has surged this month -- further underlining how the US is outpacing Europe.

The Chicago Business Barometer has jumped to 72.1 in April, the highest level since December 1983.

The index gained 5.7 points, boosted by an influx of new business. Firms also reported a large increase in order backlogs, as they struggled to keep pace with demand.

The report says:

Demand improved markedly in April with New Orders rising by 9.9 points to a near-7-year high. Production ticked up 0.9 points to the highest level since January 2018.

Anecdotal evidence suggested an anticipated increase in business activity, partly because firms are overbuying due to raw material shortages. Order Backlogs soared, up 16.2 points in April, hitting the highest level since December 1973. Firms are experiencing difficulties in getting certain components and raw materials.

The survey also show that raw material prices are soaring as firms scramble to get hold of parts, components and commodities:

Prices paid at the factory gate skyrocketed a further 11.1 points in April, surging to a 41-year high. Raw material shortages and transportation problems continue to weigh on companies cost burden.

In New York, stocks have opened a little lower on the final trading day of April, after some record highs this week.

  • Dow: down 136 points or 0.4% at 33,924
  • S&P 500: down 20 points or 0.5% at 4,190
  • Nasdaq: down 75 points or 0.5% at 14,006

Inflation fears may have reared up again, with the US PCE inflation index having risen last month (alongside that surge in income).

The US dollar has strengthened today, suggesting some investors may be wondering whether it might nudge the Federal Reserve towards considering tapering its bond-buying stimulus programme sooner.

Marketwatch suggests that data from China overnight, showing a slowdown in factory growth, hasn’t helped the mood.

Back in the UK, the Co-operative Group is to stop selling plastic “bags for life”.

Why? Because shoppers only use them only once, meaning have become as big a problem as the single-use carriers they replaced.

My colleague Zoe Wood explains:

With more than 1.5 billion “bags for life” sold each year Jo Whitfield, the chief executive of Co-op Food, said plastic pollution was a “massive issue” for retailers. “Many shoppers are regularly buying so called “bags for life” to use just once and it’s leading to a major hike in the amount of plastic being produced,” she explained.

While plastic bag levies have led to a dramatic reduction in the number of single-use bags in circulation environmental campaigners are now concerned about the impact of “bags for life” which use more plastic. Their sale, in huge quantities, is feared to be making the plastic problem worse rather than better.

Sarah Riding, retail partner at law firm Gowling WLG, says:

“This is a significant addition to the collective of commitment that has already been made to this by UK supermarkets.

However, ensuring that this is a shared approach rather than a competitive tool is vital, so it will be interesting to see whether there is any collaboration on consolidating and sharing the supply chains used for this particularly – or at the least sharing best practice in this area to the benefit of the industry, as well as the customer.”

US personal incomes surge as stimulus checks arrive

Over in the US, household incomes rocketed last month, as stimulus checks were sent out as part of its pandemic relief package.

And rocketed really isn’t an exaggeration. Personal incomes increased by 21.1% (!) in March.

The Bureau of Economic Analysis reports:

The increase in personal income in March largely reflected an increase in government social benefits. Within government social benefits, “other” social benefits increased.

The American Rescue Plan Act established an additional round of direct economic impact payments to households.

Personal spending jumped by 4.2% during the month, showing that some households spent the stimulus checks straight away.

Yet more GDP data, this time showing that Canada’s economy grew by 0.4% in Februry alone...

...and probably accelerated strongly in March:

One property expert has suggested the UK could be on the brink of a housing super-boom, after Nationwide reported the fastest jump in prices since 2004 this morning.

The UK’s biggest building society said high demand and the limited number of homes on the market could fuel a summer boom, with double-digit percentage growth in annual house prices a possibility by June.

Iain McKenzie, the chief executive of the Guild of Property Professionals, says:

“The combination of high demand and low supply could create the conditions for a housing super-boom the likes of which we haven’t seen since the early 2000s.”

Here’s the full story:

Such a boom would be another blow to those looking to get onto the housing ladder, with prices already at record highs.

Yesterday, official figures showed that UK household wealth had hit record levels - due to house price gains, pensions, and the jump in savings during the lockdown.

Those gains aren’t being shared evenly, though, given younger workers have suffered the brunt of job losses under Covid-19, while older employees over 50 face a struggle to get back into the labour market.

AstraZeneca CEO hits back at Covid vaccine supply criticism

AstraZeneca’s chief executive, Pascal Soriot, has mounted a robust defence of the drugmaker’s Covid-19 vaccine efforts.

Soriot said the business should be proud of what it has done for the world and is doing its “very best” to produce more, as the company faces legal action from the EU over delivery shortfalls, and shipments to poorer countries have also been delayed.

The company generated $275m (£197m) in revenues from the Covid vaccine it developed with Oxford University in the first three months of the year and shipped 48m doses to 120 countries through the global vaccine-sharing initiative Covax, 80% of which went to low and middle-income countries.

In total, it has supplied more than 300m vaccine doses to more than 165 countries so far this year.

Soriot said.

“We don’t regret anything, we haven’t been perfect but we did the very best, we should be proud of what we did in the world,”

He added the company was on track to produce 200m doses ready for distribution a month from May

In other GDP news... Mexico grew by 0.4% last quarter, faster than forecast.

Here’s another chart, showing how the eurozone’s Big Four countries are lagging behind the US:

UK heading for biggest economic boom since 1948 – Barclays chief

The CEO of Barclays bank has predicted that the UK economy is on course for its biggest economic boom since the 1948s.

The country’s coronavirus vaccination programme allows consumers to go out and spend, said Jes Staley this morning -- echoing recent upbeat forecast from economists.

But while Barclays did take a smaller provision for bad loans, it didn’t unlock any of the money set aside previously -- unlike rivals NatWest and Lloyds who released provisions this week.

My colleague Kalyeena Makortoff explains:

Jes Staley predicted the strongest year for economic growth since the aftermath of the second world war, at 6.5% this year, as “tremendous pent-up demand” built up during the pandemic is released.

“So we see – just like you’re starting to see in the US as well – quite a robust economic recovery in 2021,” Staley said. “We think that will carry through into 2022.”

He made the upbeat assessment of the outlook for the economy as Barclays published its first-quarter results, which showed profits at the bank more than doubled over the period to £2.4bn.

While the bank recorded a drop in consumer spending at the start of the year, Staley said the trend was already reversing, helped by the “extraordinary success” of the UK’s vaccination programme.

He said spending was already up 70% during the first two weeks of April, compared with a year earlier.

The upbeat forecast meant the lender was able to put aside a smaller sum to cover customer defaults linked to the pandemic. It logged a £55m charge to cover bad debts, a fraction of the £2.1bn set aside during the same period last year.

Barclays shares are still the biggest faller on the FTSE 100 index, down over 6%

The New York Times is also struck by the contrast between Europe and America’s economies so far this year...

Coming a day after the United States disclosed that its economy expanded 1.6 percent over the same period, the European downturn presented a contrast of fortunes on opposite sides of the Atlantic.

Propelled by dramatic public expenditures to stimulate growth, as well as swift increases in vaccination rates, the United States — the world’s largest economy — expanded rapidly during the first months of 2021. At the same time, the 19 nations that share the euro currency were caught in the second part of a so-called double-dip recession, reflecting far less aggressive stimulus spending and a botched effort to secure vaccines.

But the NYT also sees better times ahead:

But figures for gross domestic product represent a snapshot of the past, and recent weeks have produced encouraging signs that Europe is on the mend. The alarming spread of Covid-19 in major economies like Germany and France has begun to trend downward, factories have revived production, while growing numbers of people are on the move in cities.

Palladium hits record high over $3,000

Back in the markets, palladium has hit a new record high -- over $3,000 per ounce for the first time ever.

Prices of palladium, which is used in catalytic converters to clean car exhaust fumes, have risen around 20 per cent so far this year, amid fears of shortages.

The prices accelerated higher after flooding at the biggest supplier, Russia’s Nornickel, earlier this year, which hit production.

The surge in palladium’s value has even driven up thefts of catalytic converters from parked cars.

Lorna Connelly, head of claims at insurance group Admiral, said last week:

“The theft of catalytic converters is often carried out by opportunist thieves who may be working their way around different neighbourhoods.

“This isn’t always the case, however, and there is evidence to suggest that criminal gangs are involved in these types of thefts.”

“Palladium seems to be of particular interest and criminals are aware of which catalytic converters are more lucrative and contain more precious metals than others.

Eurozone in recession: more reaction

Although Europe has lagged behind this year, economist Bert Colijn of ING is confident it will start to recover in the current quarter.

Colihn predicts that the eurozone’s “underlying resilience” means it will see a pandemic rebound soon:

The first quarter has been another disappointment in the eurozone as lockdowns were extended pretty much throughout the first three months of the year. With a decline of 0.6%, the eurozone has gone through its second technical recession during the pandemic.

Despite the decline, underlying developments were quite encouraging in the first quarter. Underlying activity started to pick up from mid-January onwards. Small easings of restrictions had quite strong effects on consumption, meaning that consumers seem eager to spend when reopenings happen. Also, unemployment has been declining over the course of the second wave, confirmed today by the March release showing a drop from 8.2 to 8.1%.

Besides that, the manufacturing sector has been roaring and is mostly held back by supply constraints at the moment. New orders are rising rapidly and businesses report strong current activity. That makes it a foregone conclusion that GDP will start to rise again in 2Q.

Christoph Weil, senior economist at Commerzbank, is also upbeat, saying (via Reuters):

“The recession is a thing of the past. With progressive vaccinations and a seasonally slower spread of the coronavirus, infection figures should continue to fall in the coming weeks.

Sam Miley, economist at CEBR, cautions that growth could suffer if efforts to reopen economies are delayed:

“Amidst rising Covid-19 case numbers and associated lockdown measures in Q1, the eurozone economy has entered a technical recession with a second consecutive quarter of GDP contraction.

Looking ahead, the slower vaccine rollout and subsequent delays to reopening the economy could stifle growth within the currency union, though this is still expected to reach 4.0% in 2021.”

Inflation across the eurozone has jumped this month.

Annual euro area inflation is expected to be 1.6% in April, up from 1.3% in March, after a jump in prices.

It’s primarily driven by higher energy costs (as the oil price has rebounded from its slump early in the pandemic).

Today’s eurozone GDP report highlights the growing divergence between Europe (in recession after shrinking 0.6% in Q1) and America (recovering strongly with 1.6% growth).

Silvia Dall’Angelo, senior economist at the international business of investment manager Federated Hermes, predicts the US will probably power ahead for the next couple of quarters.

But, Europe could catch up if the vaccine rollout accelerates, and as EU stimulus money arrives, she adds:

The evolution of the pandemic, the policy response and structural differences have explained the de-coupling.

Going forward, the US economy is likely to continue to outperform for the next two quarters at least, reflecting the ongoing impact from fiscal stimulus and further progress in the vaccine rollout leading to a safe reopening of the economy and return of confidence.

That said, the euro zone should start to catch up in Q3, judging by expectation of an acceleration in the vaccine roll-out and the likely timing of the first disbursements from the EU recovery fund.”

EU leaders agreed a historic €750bn coronavirus pandemic recovery fund last July, dubbed its largest stimulus package ever.

But following discussions over how the money should be spent, and how national plans should be overseen, the first payments may not come until this summer.

In America, though, Congress approved two pandemic stimulus packages in 2020... followed by US President Joe Biden’s $1.9tn (£1.4tn) economic relief package this year. It included $1,400 payments, extension of jobless benefits, a child tax credit, and more funding for vaccine rollouts.

Unemployment across the eurozone has dropped, but remains higher than before the pandemic.

Eurostat reports that euro area seasonally-adjusted unemployment rate fell to 8.1% in March, from 8.2% in February 2021, but up from 7.1% in March 2020.

Across the wider EU, the jobless rate dipped to 7.3% in March 2021, down from 7.4% in February 2021, and up from 6.4% in March 2020.

Compared with February 2021, the number of people unemployed fell by 237,000 in the EU, and by 209,000 in the euro area

The report also shows the impact of the pandemic on jobs: Compared to March 2020, unemployment has risen by 2.019 million in the EU and by 1.614 million in the euro area.

The youth unemployment rate was still painfully high: 17.1% in the EU and 17.2% in the euro area.

Over the last year, compared with March 2020, youth unemployment increased by 319,000 in the EU and by 208,000 in the euro area.

Looking ahead, says CNBC, economists are confident that the eurozone economy will recover this year.

Countries in the region are due to start receiving EU-wide Covid support funds in the second half of the year, and the vaccination campaign has accelerated significantly since the start of 2021.

The European Union expects to have 70% of the adult population vaccinated this summer and tourism-reliant countries are hoping that a larger number of vaccinated people will allow them to have a more successful summer season this year.

The eurozone’s fall back into recession also show the importance of vaccinating its population, so that economies can reopen and tourism can restart this summer.

Robert Alster, CIO at wealth manager Close Brothers Asset Management, says:

“Put simply, the EU is dragging its feet when it comes to its economic recovery. However, speed aside, it is moving in the right direction – particularly as the vaccine roll out gathers pace.

The summer months are crucial for southern Europe’s road to recovery, with countries such as Spain, Italy and Greece heavily reliant on tourism. Hospitality businesses in particular will be banking on some sort of rebound, if not we could see a late summer of discontent aimed at Brussels.

America’s latest GDP report, released yesterday, showed the benefits of rapid vaccination (and massive government support). US GDP jumped by 1.6% during the first quarter, as business and consumer confidence were boosted by president Biden’s stimulus package, and employment picked up as vaccines were rolled out fast.

Here’s a table with more detail of today’s eurozone GDP report:

(We don’t have Q1 data from all eurozone countries yet, or for the UK either):

Eurozone back in recession as GDP falls 0.6% in Q1

Newsflash: The eurozone has fallen into a double-dip recession, as the restrictions imposed to battle the third wave of Covid-19 and save lives hit growth.

Eurozone GDP shrank by 0.6% in the first three months of this year, new figures from Eurostat show.

That follows a 0.7% contraction in the fourth quarter of 2020, when the strong rebound over the summer faded as a new wave of Covid-19 hit Europe.

That means the eurozone is in a technical recession (defined as two consecutive quarters of negative growth).

In the wider EU, GDP fell by 0.4% in January-March, after a 0.5% contraction in Q4 2020.

Eurostat explains:

Among the Member States for which data are available for the first quarter 2021, Portugal (-3.3%) recorded the highest decrease compared to the previous quarter, followed by Latvia (-2.6%) and Germany (-1.7%), while Lithuania (+1.8%) and Sweden (+1.1%) recorded the highest increases.

The year on year growth rates were negative for all countries except for France (+1.5%) and Lithuania (+1.0%).

The fall is driven by contractions in three of the eurozone’s largest economies.

As we’ve covered already, Germany shrank by 1.7%, Spain contracted by 0.5% and Italy’s GDP fell 0.4% - which puts the Italian economy into a technical recession too.

France, though, grew 0.4% having delayed its lockdown until the end of March - when a surge in infections that threatened to overwhelm hospitals forced president Macron to act, amid criticism for not acting faster.

Portugal's economy shrank 3.3% in Q1

Portugal’s economy has also shrunk, with GDP sliding by 3.3% in the first quarter of 2021 during its lockdown.

Statistics body INE says this is due to the restrictions imposed, due to the “worsening of the pandemic crisis at the beginning of the quarter”.

Domestic demand and exports both fell, it adds, including a “severe reduction” in overseas tourism.

Portugal introduced a new lockdown in January due to a sharp rise in Covid-19 infections, which made it the worst-hit country in the world by size of population.

It then extended the restrictions, with prime minister António Costa warning that the country was in a “terrible” situation and facing “the worst moment” of the Covid-19 pandemic.

Socialising between households wasn’t allowed, non-essential shops were closed, and bars and restaurants were shut except for takeaways and deliveries, to curb the virus.

ING: German economy suffered major setback

The German economy saw “a severe setback” in the first quarter, says Carsten Brzeski of ING, responding to the 1.7% drop in GDP.

Having been a growth engine in the final quarter, the economy has become a drag on the entire eurozone, he warns:

On the year, Germany’s economy was down by 3%. While the country was a positive growth driver for the entire eurozone economy at the end of last year, it has now turned into a drag factor.

The reversal of a temporary VAT cut and stricter lockdown measures are likely to have dented private consumption, he predicts.

The reversal of stockpiling ahead of Brexit at the end of last year, the impact of the harsh winter weather on the construction sector, and supply chain disruptions have all hit industry too.

But, Brzeski also argues that the economic outlook has improved, with Covid-19 vaccinations now speeding up:

The vaccination programme is finally getting moving and with the prospect of at least 50% of the adult population having had a first jab before the summer, a more substantial reopening of the economy should not be too far away.

Here’s some early reaction to the fall in Germany’s GDP last quarter, from the FT’s Martin Arnold:

And economist Howard Archer of the EY Item Club:

Italy's GDP shrinks 0.4%

Italy has contracted by 0.4% in the first quarter of the year, as the pandemic continued to hit its economy.

Statistics body ISTAT says industry grew, as did agriculture, forestry and fishing and in industry, but the services sector saw a fall in activity (due to the Covid-19 restrictions).

It adds:

From the demand side, there is a positive contribution by the domestic component (gross of change in inventories) and a negative one by the net export component.

Italy operated a ‘tiered lockdown’, with tougher restrictions on parts of the country with higher infections. In the “red zone”, only supermarkets, pharmacies and other stores selling basic necessities were left open.

Prime minister Mario Draghi began relaxing the lockdown this week, moving more regions into the more lenient “yellow zone”, where shops, cinemas and theatres can reopen, and bars and restaurants can serve customers at outside tables.

Reuters has more details:

The Italian economy plunged in the first half of last year due to government lockdowns to try to rein in the coronavirus.

It rebounded in the third quarter when restrictions were relaxed before shrinking again at the end of the year as the epidemic gathered strength again, forcing new curbs on businesses and freedom of movement.

ISTAT revised its fourth quarter 2020 data to show a 1.8% quarter-on-quarter fall, previously reported as -1.9%. The year-on-year rate was confirmed at -6.6%.

The coronavirus crisis pulled Germany’s economy into a contraction in the first three months of this year, explains statistics body Destatis:

It says:

The gross domestic product (GDP) declined by 1.7% in the 1st quarter of 2021 on the 4th quarter of 2020 after adjustment for price, seasonal and calendar variations.

After the German economy had recovered slightly in the second half of 2020 (by +8.7% in the 3rd quarter and +0.5% in the 4th quarter, according to most recent calculations), the coronavirus crisis caused another decline in economic performance at the beginning of 2021. This affected household consumption in particular, while exports of goods supported the economy.

German economy shrank 1.7% in Q1

Germany’s economy has shrunk sharply in the first quarter of the year, as the third wave of Covid-19 hit.

German GDP fell by 1.7% in the January-March quarter, slightly worse than the 1.5% contraction expected.

That follows growth of 0.5% in the final three months of 2020.

Darktrace shares soar after IPO

Shares in British cybersecurity company Darktrace have surged after it joined the London stock market today.

Shares in Darktrace jumped around 40% at the start of trading; they touched 359p, having floated at 250p, which valued the firm at £1.7bn.

They’re currently changing hands at 329p, up over 30%.

Quite a contrast with Deliveroo, which plunged 26% on their first day of trading, raising questions about the City’s appetite for tech floats.

Darktrace makes digital security products that “self-learn and self-heal”, designed to help businesses to stay one step ahead of hackers and viruses. It was founded in 2013 by mathematicians from the University of Cambridge, artificial intelligence (AI) experts and cyber specialists from GCHQ.

In the City, the FTSE 100 index has risen 25 points in early trading to 6987, up 0.35%.

Pharmaceuticals firm AstraZeneca are the top riser, nearly 3%, after reporting better-than-expected results this morning. Total revenues jumped 15% to $7.32bn, including $275m in revenues from its Covid-19 vaccine.

Core earnings per share jumped 55% to $1.63, with the pandemic vaccine programme trimming $0.03/share off these earnings (AstraZeneca is selling the jab at cost until the pandemic is over).

But Barclays are the top faller, down over 5%, despite beating forecasts by more than doubling its pre-tax profits in the last quarter, to £2.4bn.

Here’s Reuters’ take on Spain’s economic contraction last quarter:

As infections surged in the wake of the Christmas holidays, authorities tightened restrictions on movement and limited business opening hours, weighing on output and denting early optimism for a quick recovery from 2020’s record 10.8% slump.

Output fell across all sectors in the first quarter, the INE data showed, with construction the worst performer and consumption and investment also slipping.

Despite an overall decline in the services sector, hospitality, transport and trade grew by 1.4%, reflecting the lifting of some measures in March when Spaniards returned to bars and restaurants in droves.

The story so far...

Austria’s economy has returned to growth.

GDP rose by 0.2% in the first three months of the year, following a 2.7% contraction in Q4 2020.

Economic institute Wifo says that industrial firms and builders grew, while the service sector was weaker:

The positive development in industry and construction compensated for the continued declines in the consumption-related service sectors. The business activities in these sectors continued to be burdened by the restrictive measures taken to contain the COVID-19 pandemic.

On the demand side, consumer spending by private households continued to decline, while there were positive trends in investment.

Spain's GDP fell 0.5% in Q1

Spain’s economy shrank by 0.5% in the first three months of 2021, as Covid-19 restrictions weighed on output.

That follows stagnation in the final three months of 2020:

On an annual basis, Spain’s economy shrank by 4.3%, up from an 8.9% slump in the previous quarter.

Spain was also hit by terrible weather at the start of this year. Temperatures plunged to -25C in its worst snowstorm in 50 years. Several people died, as Storm Filomena brought parts of the country to a standstill.

Europe’s recovery is reliant on Covid-19 vaccinations allowing economies to reopen.

And budget airline easyJet says it is seeing stronger demand for flights in the autumn, as British holidaymakers hold off booking holidays until they know where they can travel.

Chief executive Johan Lundgren told BBC Radio that summer bookings had been delayed:

“If you would compare it to normal times, we are seeing relatively stronger numbers coming into September, October and November.

(thanks to Reuters for the quotes)

The UK could restart international travel from 17 May, but it’s not yet known which countries will be classed as low-risk (under a traffic-light system) meaning people won’t need to quarantine or self-isolate.

Yesterday, Heathrow said the government to “get a grip” of immigration and customs control, or see heavy congestion at the border.

Economist Nadia Gharbi of Pictet Asset Management shows how France’s economy is still 4.4% short of its pre-crisis level, while the US has nearly closed the gap:

UK house prices surge by most since 2004

In the UK, house price have jumped at the fastest pace in 17 years.

Mortgage lender Nationwide reports that house prices jumped by 2.1% in April alone, with the extension of the stamp duty holiday driving demand. That’s the biggest monthly increase since 2004.

It takes the average UK house price up to £238,831, a new record, from £232,134 in March.

Here’s the details:

  • Annual house price growth rebounded to 7.1% in April, from 5.7% in March
  • Prices up 2.1% month-on-month, the biggest monthly rise since February 2004
  • Annual growth will reach double digits in June if prices are flat over next two months
  • New record high average price of £238,831, up £15,916 over the past 12 months

The temporary waiver of stamp duty (on purchases up to £500,000) was due to end last month, but was extended in March’s budget.

Robert Gardner, Nationwide’s chief economist, said:

“Just as expectations of the end of the stamp duty holiday led to a slowdown in house price growth in March, so the extension of the stamp duty holiday in the Budget prompted a reacceleration in April.

The move towards home-working under the pandemic has also driven prices up in the last year; Gardner predicts the market will stay ‘fairly buoyant’ for the next six months:

“Housing market activity is likely to remain fairly buoyant over the next six months as a result of the stamp duty extension and additional support for the labour market included in the Budget, especially given continued low borrowing costs and with many people still motivated to move as a result of changing housing preferences in the wake of the pandemic.

“Further ahead, the outlook for the market is far more uncertain. If unemployment rises sharply towards the end of the year as most analysts expect, there is scope for activity to slow, perhaps sharply.

More reaction....

President Macron’s decision to delay tightening France’s lockdown until March may also have contributed to the rise in GDP.

Bloomberg says:

The French economy returned to growth in the first quarter after the government delayed implementing strict Covid-19 lockdowns that have since clouded the outlook.

Output in the euro area’s second-largest economy grew 0.4% in the three months through March, helped by President Emmanuel Macron decision to put off the tougher restrictions imposed in other European countries.

Economists polled by Bloomberg expected a stagnation.

At the end of March, Macron tightened France’s restrictions, with schools closing for three weeks, and travel between different regions banned.

He also extended a ‘lockdown lite’ which had been introduced in 16 regions, including the Paris area, earlier in March, which closed non-essential shops.

Macron had refused to impose a national lockdown in January, deciding instead to keep schools open and impose an evening and night-time curfew, and keep bars, restaurants, cafes and museums closed.

Some experts warned that France’s restrictions were too lax and amounted to a “pseudo-lockdown”.

And Macron was forced to act in March, as a surge in Covid-19 cases threatened to overwhelm the health service.

INSEE: French GDP rebounded slightly

France’s statistics body, INSEE, points out that France’s economy is still 4.4% below its precrisis level.

It says:

Gross domestic product (GDP) rose again in Q1 2021: +0.4% after −1.4% in Q4 2020. However, the economic rebound was limited, as GDP is still 4.4% below its level of Q4 2019.

Final internal demand (excluding inventory changes) made a positive contribution to GDP growth this quarter (+0.9 points after −3.0 points in the previous quarter). Gross fixed capital formation (GFCF) intensified its dynamic (+2.2% after +1.3%) and households’ consumption expenditure picked up slightly (+0.3%), after a strong decline in the previous quarter (−5.7%).

INSEE also flags that net trade dragged on growth (because exports shrank faster than imports):

In Q1 2021, exports declined (–1.5%) more than imports (–0.1%). Overall, foreign trade made a negative contribution to GDP growth this quarter: –0.4 points, after +1.2 points in the previous quarter.

Oliver Rakau of Oxford Economics says France’s growth report has ‘surprised to the upside’.

That could indicate that other EU countries may beat expectations today:

Introduction: France returns to growth, but will eurozone fall into recession?

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Today we discover how Europe’s economy fared in the first quarter of 2021, in the face of the third wave of the Covid-19 pandemic.

And the breaking news is that France’s economy has returned to growth - and faster than expected.

French GDP rose by 0.4% in the January-March quarter, new figures just released by statistics body INSEE show. Economists had only expected modest growth of 0.1%.

That follows a contraction of 1.4% in the final three months of 2020, as new restrictions hit its recovery.

INSEE reports that household spending rose by 0.3% in the quarter (up from a 5.7% slump in Q4), while “gross fixed capital formation” (business investment) was notably strong, growing by 2.2%.

That’s an encouraging start to the year -- suggesting that consumers and companies fared better than thought this year.

However, the wider eurozone may still have contracted in the last quarter, with ongoing lockdowns and a slow vaccination programme hampering the recovery.

That would put the eurozone into a double-dip recession (as GDP shrank in the last quarter of 2020). We’ll find out at 10am UK time.

Michael Hewson of CMC Markets explains:

Spain’s economy is expected to contract by -0.5%, after stagnating in Q4, with Italy set for a similar -0.5% contraction, coming on top of a -1.9% contraction in Q4. Germany’s economy is also expected to contract by -1.5%.

This set of numbers is expected to equate to a -0.8% contraction in Q1 for EU GDP, following on from a -0.7% contraction in Q4.

It will be quite a contrast with the US, where GDP grew by 1.6% during the first quarter of the year (we learned yesterday).

Rising vaccinations, a massive round of government stimulus and a steady recovery in the jobs market helped reverse some of the impact of the coronavirus pandemic, meaning the US is expected to see robust growth this year.

Its technology giants are leading the charge, with Amazon reporting blistering figures last night: sales increased 44% to $108.5bn, while it raked in a profit of $8.1bn for the quarter – $2.7bn a month.

We also get new unemployment and inflation data from across Europe, likely to show that joblessness remained elevated in March, while prices rose this month.

Hewson again...

Unemployment levels are expected to remain steady at 8.3% for March, while the latest preliminary April CPI figures are set for another sharp gain, this time to 1.6%, from 1.3% in March.

This will inevitably fuel concerns about inflationary pressures in the euro area given that headline CPI has risen from -0.3% at the end of last year to current levels in less than four months.

With growth data from Mexico and Canada (for February) on the docket, and UK house prices figures, it could be a busy day....

The agenda

  • 6.30am BST: French GDP for Q1 2021
  • 7am BST: Nationwide survey of UK house prices
  • 8am BST: Austrian GDP for Q1 2021
  • 8am BST: Spanish GDP for Q1 2021
  • 9am BST: German GDP for Q1 2021
  • 9am BST: Italian GDP for Q1 2021
  • 10am BST: Eurozone GDP for Q1 2021
  • 10am BST: Eurozone inflation for April
  • 10am BST: Eurozone unemployment for March
  • Noon BST: Mexican GDP for Q1 2021
  • 1.30pm BST: Canadian GDP for February
  • 1.30pm BST: US PCE inflation report
  • 3pm BST: University of Michigan consumer sentiment survey

Updated

 

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