Eurozone recovers from recession in first quarter

The euro zone economy has emerged from recession with stronger-than-expected growth in the first quarter of 2024 and inflation is under control, official data showed on Tuesday, April 30. This figure is unlikely to stop the European Central Bank (ECB) from cutting interest rates in June. Economists say that despite the growth rate, it is in line with expectations.

Growth in the 20-nation single currency bloc reached 0.3% quarter-on-quarter in the first three months of this year, the EU's official data agency said. Analysts polled by FactSet and Bloomberg had expected 0.1%. But the figures show that the eurozone economy entered a technical recession in the second half of last year, after gross domestic product (GDP) fell by 0.1% in the last two quarters of 2023.

Growth was stronger than expected, following welcome news on consumer prices. Eurostat said 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 remains close to the ECB's 2% target.

ECB officials will also welcome data on core inflation, which excludes volatile energy, food, alcohol and tobacco prices. Core inflation, a key ECB indicator, slowed to 2.7% in April from 2.9% in March.

Eurozone inflation has fallen sharply from its peak of 10.6% in October 2022, following Russia's attack on Ukraine and the ensuing energy crisis. 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.

Andrew Kenningham from London said: “Today's first quarter GDP data was better than expected and means the eurozone has emerged from recession, but core and services inflation both fell in April. “This does not prevent the ECB from starting an easing cycle in June.” Capital Economics is a consulting firm based in .

Optimism is back

There was more good news in the euro zone statistics on Tuesday, after Germany and France, the two biggest economies, recorded growth of 0.2% in the first quarter. ING Bank analyst Carsten Brzeski said “optimism has returned to the German economy” after the country avoided recession.

Southern Europe appears to be doing even better. Spain's economy grew by a stronger-than-expected 0.7% in the first quarter of 2024 due to increased exports and business investment. Italy recorded growth of 0.3% over the same period.

International Monetary Fund chief Kristalina Georgieva, who was in Brussels for talks with EU officials, said she was “optimistic” about Europe's growth. She told reporters that she was “actually growing. Despite the energy shock, the economy is in positive territory.” But Georgieva said, “Inflation is coming down, but it's not over,” she warned.

Energy prices in the euro area fell in April, contracting sharply by 0.6% compared to a 1.8% decline in March. Lithuania had the lowest inflation rate of 0.4% in April in the 27-nation European Union, according to Eurostat data. Finland was not far behind, with an inflation rate of 0.6% in April.