The eurozone grew faster than expected in the first quarter 2024 thanks to a recovery in Germany, bringing a shallow recession to an end.
According to figures released this morning by Eurostat, the eurozone grew 0.3 per cent between January and March, ahead of the 0.1 per cent expansion expected by economists.
This meant the single currency area moved out of a shallow recession recorded in the second half of 2023 after growth was revised down at the end of last year.
Previous figures had shown that the eurozone stagnated between October and December, but this was revised down to a 0.1 per cent contraction meaning there were two consecutive quarters of contraction in the second half of last year.
The improved performance at the beginning of 2024 largely came thanks to an improvement in Germany’s performance. Having shrunk 0.5 per cent in the final quarter of last year, German GDP rose 0.2 per cent in the first quarter of 2024.
The French economy meanwhile showed a marginal improvement. Growth picked up from 0.1 per cent last quarter to 0.2 per cent. Spain continued to be the strongest-performing large economy, notching a 0.7 per cent expansion.
“Growth is finally picking up and the rebound is even stronger than we thought as past revisions show it was actually in a shallow recession at the end of last year,” Melanie Debono, senior Europe economist at Pantheon Macroeconomics said.
‘Flash’ figures for April also showed that inflation came in line with expectations, with prices rising 2.4 per cent compared to last year.
Although headline inflation was flat, there was progress on both services and core inflation. Services inflation fell to 3.7 per cent in April, down from 4.0 per cent in March, while core inflation dipped to 2.7 per cent from 2.9 per cent.
“A long-awaited capitulation in services inflation is particularly notable and should give rate-setters a dose of confidence, given that concerns about persistent pressures in the sector had been touted as a significant hurdle to rate cuts,” Kyle Chapman, FX markets analyst at Ballinger Group commented.
With inflation approaching the two per cent target, traders think the European Central Bank (ECB) will start cutting interest rates in June.
Most economists suggested these figures would do little to alter the course, even though growth was slightly stronger than expected.
“Strong GDP data will not stop June rate cut,” Andrew Kenningham, chief Europe economist at Capital Economics said.
“While the euro-zone’s mild recession appears to be over we think the economy will expand at a only a moderate pace over the rest of the year,” he continued.