Macroeconomic focus – May 2021

Towards an economic recovery

First-quarter 2021 growth numbers are still reflecting the impact of health restrictions across the eurozone. [1]GDP shrank 2.5% year-on-year to settle 5.5% below its fourth-quarter 2019 level. It fell 6.6% in Germany, 1.6% in Italy, and 0.5% in Spain. French GDP grew by 1.8% thanks to a rebound in household consumption and business investment, bringing its overall decline to -4.4% compared to the pre-crisis level.

The monthly Banque de France economic update estimates that GDP stood at -6% in April due to the tighter health restrictions and in particular to the nationwide closure of non-essential businesses. May’s growth is expected to improve to -4% with restrictions being partially lifted on 19 May. The curfew will move to 9 pm and reopenings, albeit with reduced capacity, will concern non-essential shops, café terraces, museums, cinemas and theatres.

In Germany, restrictions have also been significantly eased. In contrast with France, there is no set schedule, and they depend on each region’s incidence rate. Across almost all of Germany, the rate has fallen below 100, the threshold at which reinforced measures are triggered. This means that restrictions on essential businesses have been eased, café terraces and cultural institutions have reopened, and the curfew has been lifted.

Third-quarter 2020 figures suggest that relaxed health restrictions across most of the eurozone should enable a strong rebound in growth and employment in the second quarter. Eurostat data shows a 0.3% fall in the number of people employed in the first quarter of 2021, taking the total number of jobs destroyed since the start of the Covid-19 crisis to 3.6 million.

While this 2.2% decline from the level prevailing in December 2019 is comparable with the employment low point reached during the 2008–09 crisis, the economic impact in 2020 was much stronger. Short-time working schemes have limited redundancies, and businesses have adjusted primarily by reducing the number of hours worked.

In contrast with the United States, eurozone inflation remains subdued. April’s consumer prices rose 1.6% year-on-year and the index excluding food and energy came in at 0.7%.


(1)GDP (Gross Domestic Product): Total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.


The economy and inflation both moving higher

First-quarter [1]GDP 2021 growth rose 6.4% year-on-year, returning to just 0.9% below its pre-crisis level. Consumer spending was by far the strongest growth driver as the cheques sent by the government in January and March boosted household incomes. While investment and government spending also contributed positively, changes in both the trade balance and inventory levels dragged on growth.

Retail sales stalled in April, remaining flat overall for the month and down 1.5% excluding volatile elements. However, the number for March was revised up to 10.7%, which puts April’s reading in a different light. The [2]ISM surveys softened in April, but at 60.7 in the manufacturing sector (-4.0 points) and 62.7 in the services sector (-1.0 point), they remain high.

The main disappointment came from April’s jobs creation numbers. While the consensus had been for nearly one million new jobs to be created, only 266,000 materialised. Several indicators suggest that the situation is due to a shortage in labour supply rather than a pause in the economic recovery. Higher numbers of hours worked combined with a sharp rise in hourly earnings (+0.7% for the month) could be signalling recruitment difficulties and small firms have been reporting unprecedented issues in hiring staff.

This situation may be the result of additional unemployment benefit ($300 per week) potentially reducing the incentive to seek paid employment.  While the scheme is due to expire at the beginning of September, the Biden administration has already announced that those refusing a job offer will no longer be eligible for the payment. The administration also announced a social spending plan financed by increased taxes on the highest incomes, a plan that will have to be voted in Congress.

Another surprise came from inflation. The numbers exceeded expectations by reaching 4.2% in April year-on-year for headline inflation and 3.0% excluding energy and food. The high readings reflect both the base effect and high price rises during the month. It has been 30 years since core inflation last rose 0.9% over the course of a month. Half of this increase is due to prices for used cars, airline tickets and accommodation being pushed higher by supply problems in the auto sector and a recovery in tourism.

The Fed’s position is unlikely to shift in the face of these short-lived upturns and it maintained the status quo at its latest meeting at the end of April. FOMC minutes acknowledged the recovery and stated it was still premature to discuss scaling back the pace of its asset purchases. However, some members indicated their willingness to engage in such a discussion if the rapid progress in the economy continued.

(1)GDP (Gross Domestic Product): Total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.


[2]ISM: The ISM manufacturing index, which reflects the health of the sector in the United States, and the ISM services index, which is more specific to service activities. This index, evaluated as a percentage, is the result of a survey of 400 companies on data such as: indicators on new orders, production, employment, delivery times, prices, inventory, export and import orders, etc.


Lacklustre economic data

Overall, April’s economic data came out below expectations. Year on year, industrial output slowed from 14.1% to 9.8%, retail sales from 34.4% to 17.7% and investment spending from 19.4% to 10.9%. While unfavourable base effects make the data difficult to interpret, their seasonally adjusted counterparts also show a slowdown from March and at a time when credit expansion continues to soften.

In contrast, exports remained extremely buoyant, up 32.3% year-on-year in April after 30.6% in March. Imports were also very high, rising 43.1% year-on-year. The [1]PMI surveys were positive, continuing the rebound that started in March. The average of the official and Caixin/Markit PMI surveys rose from 51.3 to 51.5 in the manufacturing sector and from 55.3 to 55.6 in the services sector.

The good news is that the pace of vaccinations has risen sharply in recent weeks. According to, on 18 May the number of daily injections was equivalent to 0.92% of the population versus just 0.25% a month earlier. In comparison, the United States reached a peak of 1.01% in mid-April. 0.92% represents 436 million injected doses, but as a breakdown of first and second doses is not available, the number of fully vaccinated is unknown. If we assume that all those vaccinated have received two doses, then at least 15.1% of the population is protected from Covid-19 and should this pace be maintained, then China could have fully vaccinated its entire population by next November.

The National Bureau of Statistics has released the results of its national census that has been carried out every ten years since 1990. China remains the most populous country in the world with 1.41 billion inhabitants in 2020, 72 million more than in 2010. The average annual population growth rate is only slowing slightly, from 0.57% (2000–2010) to 0.53% (2010-2020). Contrary to fears, China’s population is not yet in decline. Nevertheless, the demographic dividend is clearly less favourable for economic growth than before. The United Nation’s median scenario estimates that China’s population could peak around 2030.


[1]PMI: PMI indices are confidence indicators that summarize the results of surveys conducted among company purchasing managers. A value greater than 50 indicates a positive sentiment in the sector concerned (manufacturing or service).



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Source : Lazard Frères Gestion

The opinion expressed above is dated May 30th 2021, and is liable to change.

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