Eurozone’s first-quarter GDP revised to 0.4%, soft landing on track

Eurostat released the latest revised data on Wednesday (15th), showing that after the euro zone\’s economic growth entered a slight recession in the second half of 2023, gross domestic product (GDP) increased at both annual and quarterly rates in the first quarter of this year. Growth, even the long-term drag on German economic growth exceeded expectations.

The European Union Statistics Office (Eurostat) released the latest revised data on Wednesday (15th) showing that the euro zone\’s gross domestic product (GDP) grew at both annual and quarterly rates in the first quarter of this year after its economic growth entered a slight recession in the second half of 2023. Even Germany\’s economic growth, which has been a long-term drag, exceeded expectations.
At the same time, the European Commission said in a report that the euro zone\’s soft landing is on track. Inflation will fall faster than previously expected and economic growth will accelerate next year.
Specifically, the Eurozone\’s seasonally adjusted GDP increased by 0.3% in the first quarter of this year, which was in line with market expectations. The economy showed a recovery trend. It fell by 0.1% in the fourth quarter of last year. On an annual basis, the Eurozone\’s seasonally adjusted GDP increased by 0.4% in the first quarter of this year. % was in line with market expectations, a significant acceleration from the 0.1% growth in the fourth quarter of last year.
However, among the major European economies, the German economy is still in a state of contraction. In the first quarter of this year, the GDP fell by 0.2%, which was the same as the previous quarter but better than market expectations. The French economy accelerated its recovery to growth. The GDP in the first quarter of this year increased by 1.1%, which was better than the previous quarter. GDP growth in the first quarter of Spain and Italy was 2.4% and 0.6% respectively.
On the other hand, the Eurozone job market continues to recover slowly.
Data showed that in the first quarter of this year, employment in the Eurozone increased by 0.3% quarter-on-quarter and 1.0% year-on-year.
The European Commission predicts that euro area GDP will grow by 0.8% this year and 1.4% in 2025, which is almost unchanged from the last set of forecasts three months ago; inflation expectations for this year and next year have increased from 2.7% and 2.2% previously. % was revised down to 2.5% and 2.1%.
\”We expect growth to gradually accelerate this year and next as private consumption is supported by falling inflation, a recovery in purchasing power and continued employment growth,\” EU Economic Commissioner Paolo Gentiloni said in a statement.
” However, he warned that public debt will increase slightly next year and that fiscal consolidation will be needed while protecting investment.
According to the EU\’s latest forecast, the euro zone\’s total budget deficit in 2024 and 2025 is 3% and 2.8% respectively, higher than the previous forecast of 2.8% and 2.7%.
France and Italy currently face larger deficits, while Germany and Spain are expected to have smaller shortfalls.
The ECB is increasingly calling for a rate cut next month. It is worth noting that the European Central Bank (ECB) will start an interest rate cut cycle in June and will continue to cut interest rates in the second half of the year amid a steady decline in inflation. The market predicts three interest rate cuts this year.
French Bank of France President Francois Villeroy de Galhau said the European Central Bank is likely to start cutting interest rates at its next policy meeting in June.
He told RTL radio on Wednesday that barring surprises the ECB remained committed to its target of bringing inflation to 2% by next year from the current 2.4%.
Daigayou\’s comments reflected a consensus despite some of the more hawkish ECB policymakers urging more caution in cutting rates after the first rate cut in June.
Supporting this view are continued wage increases in the euro zone and energy market uncertainty caused by the situation in the Middle East.
Strong growth in the euro zone economy may also make policy easing less urgent.
Other ECB officials including Bank of Finland Governor Olli Rehn and Estonia Central Bank Governor Madis Muller also expressed support for an interest rate cut in June on the same day.
ECB President Christine Lagarde told the media last month that the central bank is still on track to cut interest rates in the near term. Inflation is slowing as expected and interest rates will be cut soon if there is no major shock.

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