While Jesus turned water into wine, an overturned milk tanker has turned a river white! A tweet from Natural Resources Wales, the agency responsible for environmental management in Wales, has revealed an unknown quantity of milk entered the River Dulais (near Swansea) causing “significant discoloration”. Locals have decided not to cry over the spilt milk.

On the other hand, investors have been quick to knock over their glasses of milk as emergent economic data from China, the US, and the European Union revealed diverging growth stories amongst the world’s largest economies. Data has shown a strong economic recovery in the US while China is experiencing slowing growth and the European Union has falling back into recession. As a reminder, a recession is defined as two consecutive periods of negative GDP growth.

Despite several strong corporate earnings reports in recent weeks, the economic data release sent markets down sharply as investors were forced to come to terms with the conflicting news flow.

The divergence comes as the EU’s vaccination programme continues to fall significantly behind both that of the UK and the US, leaving large swathes of the continent still under lockdown restrictions. While the double-dip recession will no doubt cause more economic hardship for the bloc, the IMF is currently expecting the EU to return to pre-Covid trend levels by around 2023. Meanwhile the US, whose vaccination programme has now delivered jabs to almost half of the population, is forecasted to return to trend by 2022.

Figure 1. A successful vaccine roll-out in the US has helped propel the economy to just below pre-pandemic levels while the European Union’s problematic programme risks lasting damage

Source: International Monetary Fund, World Bank, EQ Investors

It’s not just the vaccine roll-out that has contributed to the improvement in the outlook for economic output. A large boost to sentiment in the US has been the announcement of vast economic stimulus packages which have subsequently been placed before Congress, with money earmarked for individuals (in the stimulus cheques), an expansion of government services and public infrastructure. Meanwhile, it’s been almost nine months since EU leaders produced plans for an EU recovery fund and beneficiaries are yet to see any of the proceeds allocated, let alone have the EU’s national governments approve the plans.

Nevertheless, when Europe emerges from its third wave of Covid-19 infections, it will undoubtedly unleash a wave of pent-up consumer spending which will buoy economic growth. All eyes will be on the bloc’s second quarter GDP figures which will give a better indication about the shape of Europe’s recovery.

STAT OF THE WEEK: 20 million – the number of Britons living in areas that did not report a single Covid-19 death in April (BBC News).

Data correct as at: 30/04/2021

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