The eurozone economy grew by 0.3% in the first three months of the year, beating market expectations and raising the possibility of a June interest rate hike.
JPMorgan global market analyst Natasha May said this “meaningful increase” in economic growth, along with a decline in core inflation to 2.7%, puts the European Central Bank (ECB) in an ideal situation. He said that he is paving the way for
“Higher frequency indicators such as PMI are also on the rise, and this number is a clear reason for optimism,” she added.
“And while headline inflation remained stable in April thanks to energy prices looking less flattering compared to year-ago levels, service prices have finally slowed after five months of no change. .”
Services inflation is the main barrier to the ECB's interest rate cuts and is a “key item to monitor”, but the statistics put the ECB “on track”.
However, Quintet Private Bank CIO Daniele Antonucci warned that the outlook for potential job cuts may not be so rosy.
“The glass-half-empty story is that while there are forward-looking indicators that economic conditions are reasonably good, the pace of growth remains fairly anemic,” he explained.
“This is in contrast to the US, where domestic demand is showing resilience and GDP growth appears to be reaccelerating.”
Mr Antonucci said the overall direction of inflation in the euro area was trending downward as economic growth picked up, although food and energy prices remained volatile.
Ireland's economy grew the most in the first three months of 2024, rising by 1.1%. This was followed by Latvia, Lithuania and Hungary, which increased by 0.8% throughout the first quarter.
In fact, Sweden was the only country whose economy contracted during this period, even if it was a shallow 0.1% decline.
Antonucci said there is a good chance the ECB could go ahead with its plan to start cutting interest rates in June if trends continue, but that decision could be influenced by the Fed. He said the U.S. central bank could wait even longer before cutting interest rates, which could impact the eurozone economy.
Antonucci added: “Short-term exchange rate trends tend to be influenced by interest rate differentials between the two countries, so if the ECB were to force policy regardless, it could lead to a weaker euro.”
“A weaker euro is likely to increase imported inflation, making the ECB's goal of returning consumer inflation to its 2% target difficult.”
