Oleg Erkov
Written by Bart Collin
The euro area economy finally showed some meaningful growth in the first quarter of 2024, after a long period of stagnation since the start of the energy crisis in the second half of 2022. The economy is profitable. Energy supplies were more stable, costs were significantly lower, and inflation rates were lower. Second, wage growth accelerated to compensate for lost purchasing power, now benefiting consumers.
Although the details are not yet known, judging from the situation in France, it appears that household consumption is the driving force. In Spain, strong investment data boosted economic activity. Overall, Southern Europe appears to have once again outperformed Northern Europe, with Spain and Portugal recording growth of 0.7% in the quarter, and Italy accelerating to 0.3%. Germany and France both grew by 0.2% quarter-over-quarter, which is not much, but still an improvement.
However, we should not go overboard with talk of “the economic recovery starting''. Unlike post-pandemic, we are not seeing a strong recovery as the economy is still suffering from weak global demand, real wages have not recovered to 2021 levels, and we are still adjusting to rising interest rates.
The European Commission's economic sentiment indicator showed another disappointing April, with weak activity in the services sector and weak manufacturing production. Although his PMI for April has improved, the overall conclusion so far seems to be that the economy is mixed at the beginning of the second quarter.
The eurozone is on track for stronger-than-expected growth in 2024 as the modest recovery continues following Tuesday's upbeat first-quarter GDP numbers. The economic environment in the euro area is looking up, as inflation remains relatively benign at the moment and unemployment is at record lows.
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