(Brussels) Europe emerged from recession in the first quarter, with more robust growth than expected, while inflation under control should confirm the European Central Bank (ECB) in its plan to cut rates in June.
The gross domestic product of the euro zone showed a clear rebound, increasing by 0.3% compared to the previous quarter, like that of the European Union as a whole. For its part, inflation remained stable at 2.4% over one year in April, Eurostat announced on Tuesday.
Analysts polled by Bloomberg and Factset on average expected economic growth of 0.1% in the first three months of the year.
GDP had fallen by 0.1% in the previous two quarters in the euro zone, representing a technical recession in the second half of 2023, according to figures released by the European Statistics Institute.
Overall, the European economy remained mired in stagnation for a year and a half.
From January to March, all the major countries are in positive territory: Spain (+0.7%), Italy (+0.3%) but also Germany and France, the two leading economies in the bloc which showed growth of 0.2%.
This improvement on the growth front comes with other good news: the stability of the rise in consumer prices in April at 2.4% year-on-year in the 20 countries sharing the single currency, as expected by analysts.
This increase therefore still remains close to the 2% objective of the European Central Bank (ECB), which should confirm its desire to lower interest rates.
It seems certain that the ECB will lower its rates for the first time in June, according to recent statements by its leaders.
Core inflation – that is to say corrected for volatile energy and food prices -, an indicator particularly scrutinized by the financial markets and the ECB, has also continued to fall to 2 .7% in April, after 2.9% in March.
The increase in consumer prices in the euro zone has been more than divided by four since the record of 10.6% over one year reached in October 2022 when energy prices were soaring in the context of the war in Ukraine.
To calm inflation, the ECB has increased borrowing costs at an unprecedented rate since July 2022. Its rates have been kept unchanged at a record level since October 2023, at the cost of flagging economic growth.
The “optimistic” IMF
Demand for credit has been slowed, affecting consumption and investment by businesses and households alike.
The head of the International Monetary Fund (IMF), Kristalina Georgieva, in Brussels for meetings with EU officials, said on Tuesday she was “optimistic” about Europe’s growth.
“The economy is in positive territory despite the energy shock,” she told journalists, although with a warning on prices: “inflation is decreasing, but (the fight) is not over “.
The day’s indicators were welcomed by analysts.
The GDP growth of 0.3% is “the strongest growth since the third quarter of 2022, when the energy crisis began,” underlined Bert Colijn. “The eurozone economy has clearly entered a more favorable phase with low unemployment and more moderate inflation,” he said, while warning that the rebound in sight would not be “vigorous” .
“The economy is still suffering from weak global demand, real wages have not returned to 2021 levels and adaptation to higher interest rates is still ongoing,” according to him.
For Andrew Kenningham of Capital Economics, “the higher-than-expected first quarter GDP data means that the euro zone has emerged from recession” and the fall in core inflation in April “will not prevent the ECB to begin its rate easing cycle in June.”
But he estimates that growth will remain “moderate” over the rest of the year.