As Inflation Remains Stable, the Eurozone Is Making a Comeback From Recession

After enduring a moderate recession for a while, the Eurozone economy began to show signs of improvement in the first three months of this year. Not only did growth resume in Germany, but expansion accelerated in other countries as well. At the same time, inflation has stayed low, which supports the idea that the European Central Bank might think about lowering interest rates.

According to official numbers released on Tuesday, the 20-country bloc’s GDP rose 0.3% from January to March, or 0.5% year over year. The market had been anticipating a 0.2% increase for both metrics, so this was a pleasant surprise.

There Could Be a Technical Recession in the Second Half of the Year

Revisions to the fourth-quarter Gross Domestic Product (GDP) statistics bring it down from 0.0% to minus 0.1%. This points to a technical recession that hit the Eurozone in the second half of 2023. During the third quarter, the gross domestic product fell by 0.1%.

The data suggests that most people are hoping for a slow but gradual recovery in the Eurozone. The International Monetary Fund (IMF) predicted earlier this month that the European Union’s GDP will increase by 0.8% this year, which is twice as fast as in 2023, and by a more robust 1.5% in 2025.

The study states that the Eurozone’s inflation rate remained constant at 2.4% in April. The European Central Bank is expected to meet on June 6, the same day that EU citizens start voting for the European Parliament. A key indicator of underlying price pressures slowed down, adding weight to the case for interest rate cuts.

Data has encouraged the hope that inflation will achieve the ECB’s 2% objective by next year, says Francois Villeroy de Galhau, governor of the Bank of France and a policymaker at the ECB. Consequently, the bank can start cutting rates in June.

He stated on the social networking site, “The rate of reductions should then be determined practically based on the inflation forecast beyond the month-to-month outcomes, which may exhibit a certain level of unpredictability.”

According to data collected by the European Union statistics agency, each of the ten member states that came together to form Eurostat’s flash estimate for the European Union (EU) demonstrated positive growth. At the very least, the growth rates were comparable to those of the fourth quarter.

German GDP Beats Bold Forecasts

The Gross Domestic Product (GDP) of Germany, which is the largest in the Eurozone, far surpassed the projections for the first quarter, extending its increase from the previous quarter by 0.2%.

Increases were seen in both exports and building investment, with the latter being fueled in part by the exceptionally mild winter weather, which contributed to the overall growth phenomenon. The revised data for the fourth quarter, on the other hand, suggest that there will be a more significant decline toward the end of 2023.

UniCredit observed that “the most challenging period is now in the past,” expressing optimism that the German economy will gradually expand in the coming quarters as a result of increased trade and a reduction in inflation.

A growth rate of 0.7% was recorded in the Spanish economy during the most recent quarter, which was higher than the 0.4% expansion that was anticipated. This positive outcome can be attributed to the increasing levels of investment and private consumption that have taken place.

Despite the fact that European recovery funds were put into action, the growth of investments had needed to be faster in the previous quarters. Throughout the quarter, there was growth in the economy’s construction and manufacturing sectors.

An increase in both consumer spending and corporate investment contributed to the French economy’s meteoric rise in the first quarter, which was significantly higher than what was anticipated.

The French government, which was heavily criticized for its economic management after lowering its growth forecast for 2024 in February, will be pleased with the expansion. The decline in growth forecast was made prior to the expansion.

In response to those who believe that our economy has reached a standstill, Belgian Finance Minister Bruno Le Maire made the following observation: “The data is indisputable; French growth is on the upswing.”