Eurozone emerges from recession but France, Germany stay weak

6 months ago 24

The eurozone beat analyst expectations to emerge comfortably from a recession in the first quarter of this year, new EU data published on Tuesday (30 April) showed, while inflation figures boosted hopes of long-awaited rate cuts by the European Central Bank (ECB) in June.

Eurostat, the EU’s official statistics office, reported that the single currency area grew at a quarterly rate of 0.3% over the first three months of this year, after declining by 0.1% in the final two quarters of 2023. A recession is technically defined as two consecutive quarters of negative growth.

Analysts polled by Bloomberg and FactSet had predicted the eurozone would grow by just 0.1%.

Sander Tordoir, a senior economist at the Centre for European Reform, told Euractiv that the data suggests that the supply shocks triggered by Russia’s full-scale invasion of Ukraine in February 2022 “are really well and truly behind us”.

“There is some life left in the European economy,” he said. However, he warned that growth in the bloc’s two largest economies, Germany and France, which both expanded by just 0.2%, remains concerning: “Germany remains weak; France is also not great,” he said.

Meanwhile, Eurostat reported that eurozone inflation in April remained steady at 2.4%, in line with analyst expectations. The ECB’s target rate is 2%.

Core inflation, which provides a better estimate of underlying price pressures by stripping out volatile food and energy prices, slid 0.2 percentage points to 2.7% over the same month – the lowest level since the start of the Ukrainian conflict.

Prices soared across the bloc following Russia’s invasion of its neighbour two years ago, with inflation eventually peaking at 10.6% in October 2022.

The price spike caused the ECB to hike rates 10 times between July 2022 and September 2023, bringing its benchmark deposit rate from negative levels to a record high 4%.

The bank has held its key interest rate steady at its previous five meetings. Economists recently polled by Reuters and other outlets overwhelmingly expect the ECB to cut rates at its forthcoming June meeting.

“[The data] puts the ECB on track to do a rate cut in June, which would then be another shot in the arm for the European economy,” Tordoir noted.

[Edited by Anna Brunetti/Zoran Radosavljevic]