The euro area economy recovered from a slight recession in the first quarter as Germany returned to growth and expansion accelerated elsewhere, but inflation remained steady and the European Central Bank (European Central Bank) The rationale for the ECB to cut interest rates has further strengthened.
Official data on Tuesday showed that the gross domestic product (GDP) of the 20-nation bloc rose 0.3% year-on-year in the January-March period and 0.5% year-on-year, but market expectations indicate that both will expand. This was an increase of 0.2% compared to the previous year.
The GDP data for the fourth quarter was also revised downward from 0.0% to -0.1%, meaning the eurozone has entered a technical recession in the second half of 2023. GDP contracted by 0.1% in the third quarter.
This figure reflects the general expectation that the recovery in the euro area will be slow. The International Monetary Fund (IMF) predicted earlier this month that the region's GDP would grow by 0.8% this year, double that in 2023, before rising by an even healthier 1.5% in 2025.
The euro zone's annual inflation rate was unchanged in April at 2.4% from the previous month, in line with economists' expectations.
This figure means the interest rate is close to the ECB's 2% target.
But a key indicator of underlying price pressures has weakened, giving the European Central Bank a strong case to cut interest rates at its June 6 meeting, just as EU citizens vote in the European Parliament elections. It was around the time I started.
Core inflation, which subtracts volatile prices for energy, food, alcohol and tobacco, is the central bank's key indicator, slowing to 2.7% in April from 2.9% in March.
In the wake of Russia's attack on Ukraine and the ensuing energy crisis, the eurozone's inflation rate has fallen significantly from its peak of 10.6% in October 2022.
The ECB has been aggressively raising interest rates since July 2022 to stem soaring prices, but has frozen borrowing costs in the past few months amid growing calls for interest rate cuts.
“We still expect the first rate cut in June, but the central bank will remain extremely cautious,” said Bart Koline, an analyst at ING Bank.
“The worst is finally over.”
The EU's statistics agency Eurostat showed growth in all 10 countries, from which it compiled the data for its preliminary estimates for the bloc. Growth was at least on par with the fourth quarter.
IMF chief Kristalina Georgieva, who was in Brussels for talks with EU officials, said she was “optimistic” about Europe's growth.
“It's actually growing. Despite the energy shock, the economy is in positive territory,” he told reporters.
But she pointed to “slower growth” and “widening inequality” as low-income countries lag behind the richest, and spoke of “two big clouds hanging over our heads”. I warned you.
He also noted that “inflation is coming down, but it's not over yet.”
Germany returned to growth in the first quarter with a better-than-expected 0.2% quarter-over-quarter increase, as unusually warm winter weather boosted exports and construction investment.
“Optimism has returned to the German economy,” said ING Bank analyst Carsten Brzeski, after the euro zone's biggest economy avoided recession.
However, the fourth quarter numbers have been revised to show an even deeper decline at the end of 2023.
“The worst is finally over,” UniCredit said, adding that increased trade and lower inflation were likely to lead to moderate growth in Germany in the coming quarters.
Spain's economy grew 0.7% quarter-on-quarter on a boost in investment and consumer spending, beating analysts' expectations for 0.4% growth. Despite the rollout of the European Recovery Fund, investment growth has been weak until the past quarter. Industry and construction expanded during the quarter.
The French economy also gained momentum from January to March, growing slightly faster than expected due to a recovery in consumer spending and business investment.
The growth is good news for the French government, which has drawn fierce criticism from opposition parties over its handling of the economy after revising its 2024 growth forecast in February.
Finance Minister Bruno Le Maire said: “For all of you who would like to think our economy has stalled, the facts are stubborn: France's growth is improving.”
