The euro zone economy recovered from a mild recession in the first quarter as Germany returned to growth and expansion accelerated elsewhere, but inflation remained strong and the European Central Bank cut interest rates. The grounds for demanding this have become stronger.
The GDP data for the fourth quarter was also revised downward to -0.1% from the previous 0.0%, meaning the euro area 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 IMF predicted earlier this month that the region's GDP will grow by 0.8% this year, double that in 2023, and a healthy 1.5% in 2025.
Inflation in the euro zone stabilized at 2.4% in April, data showed. But a key indicator of underlying price pressures has slowed, solidifying the case for the European Central Bank to cut interest rates at its June 6 meeting, the same day EU citizens begin voting in European Parliament elections.
François Villeroy de Galhau, president of the French central bank and member of the ECB's policy committee, said the data gave him more confidence that inflation would return to the ECB's 2% target by next year, leading the central bank to cut interest rates in June. He said he should be able to start.
“The speed of rate cuts should be set realistically, depending on the inflation outlook beyond the monthly results, and we may see some volatility,” he said on the social network LinkedIn.
Statistics from the EU's statistics agency Eurostat showed growth in all 10 countries for which the region compiles preliminary data. Growth was at least on par with the fourth quarter.
Germany, the eurozone's biggest economy, returned to growth in the first quarter with a better-than-expected 0.2% quarter-over-quarter increase on exports and construction investment boosted by unusually warm winter weather. However, the fourth quarter numbers have been revised to show an even deeper drop in her 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 by 0.7% from the previous quarter, beating analysts' expectations for growth of 0.4% due to a boost in investment and consumer spending. 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 heavy criticism from opposition parties over its handling of the economy after cutting its 2024 growth forecast in February.
Finance Minister Bruno Le Maire said: “For all of you who would like to think that our economy has stalled, the facts are stubborn: France's growth is improving.” [Reuters]
