Economic Perspectives –

Eurozone back in recession in 2021Q1 as Covid restrictions curb activity

The latest Perspective from Ruth Lea CBE, Economic Adviser to Arbuthnot Banking Group.


4th May 2021


Ruth Lea CBE


In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the first estimates for GDP for 2021Q1:

  • Eurozone GDP fell by 0.6% (QOQ) in 2021Q1, following the 0.7% decline in 2020Q4, thus falling into recession as defined as two successive quarterly falls in GDP.
  • Within the Eurozone, there were large divergencies. German GDP fell back 1.7% and Italian and Spanish GDP also declined. But French GDP picked up by 0.4%.
  • Non-Eurozone, “anti-lockdown” Sweden posted a GDP increase of 1.1% in 2021Q1.  
  • US GDP grew by a much-as-expected 6.4% (annualised rate, 1.6% (QOQ)) in 2021Q1, supported by very accommodative fiscal and monetary policies.
  • The Fed maintained its accommodative monetary policies at its last policy-making meeting (27-28 April).  
  • In a speech to Congress on 28 April President Biden set out his plans for $2.3tn of investment spending (the “American Jobs Plan”) and $1.8tn of spending for the “American Families Plan”. These plans are in addition to the $1.9tn “American Rescue Plan”, agreed in March. President Biden proposes (part) funding the plans by tax increases on the “wealthy” and corporations. 
  • China’s GDP rose by a record 18.3% (YOY) in 2020Q1, though the data were distorted by the annual comparison with 2020Q1, when GDP fell by 6.8% (YOY).
  • The first estimates for UK GDP for 2021Q1 will be released on 12 May.   

UK update:

  • The MPC is not expected to make any major changes to policy at its May meeting (announcement 6 May), though there are expectations that the pace of QE will be slowed. It is expected the Bank will revise its GDP forecasts higher.
  • SMMT data suggested car production improved modestly in March.
  • According to the Nationwide, house prices rebounded by 2.1% (MOM) in April, to be 7.1% higher YOY.

The Institute of Government has released an analysis of the fiscal positions of Scotland, Wales and Northern Ireland, alongside England, for FY2018. The main findings were:

  • The public sector deficit per person in England was £91. In other words, the UK government spent £91 more per person in England than revenue raised per person.
  • The public sector deficit per person in Scotland was £2,543 (£2,452 higher than in England; spending was £1,986 higher, whilst revenues were £466 lower).
  • The equivalent deficit data were £4,412 for Wales (£4,321 higher than in England; spending was £1,167 higher, whilst revenues were £3,154 lower) and £5,118 for Northern Ireland (£5,027 higher than in England; spending was £2,317 higher, whilst revenues were £2,710 lower).
  • Public sector net borrowing (the PSNB) was 1.8% of GDP in the UK in FY2018, but the deficits of the four constituent nations of the UK varied substantially. Allocating debt interest spending and all international and defence spending evenly across the UK population suggested that England ran a deficit of just 0.3% of GDP, while Scotland had a deficit of 7.7% of GDP, Wales of 17.9% of GDP and Northern Ireland of 19.0% of GDP.
  • The Institute of Government noted that since FY2018, the fiscal position of the UK had deteriorated significantly as a result of the Covid-19 pandemic.

Brexit update:

  • It was announced on 28 April that the European Parliament had voted in favour of granting its consent to the UK-EU Trade and Cooperation Agreement (TCA). The consent decision was adopted by 660 votes for, five against and 32 abstentions.

Ruth Lea said “Covid restrictions continued to hold back Eurozone activity in the first quarter, with German GDP falling 1.7%. Moreover, continuing restrictions into the second quarter can be expected to continue dampening activity. Meanwhile, the US showed reasonable growth the 2021Q1, supported by very accommodative monetary and fiscal policies, and should show strong growth in 2021Q2. Even though GDP in the UK can be expected to have fallen by around 1½% in 2021Q1, growth should pick up strongly in the second quarter, provided the lockdown restrictions continue to be lifted as planned.”



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Author -

Ruth Lea CBE

Ruth Lea CBE

Economic Adviser, Arbuthnot Banking Group

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

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