Eurozone GDP Growth Surprises in Q1 2024
The Eurozone has left its technical recession behind. The latest data shows an increase in gross domestic product (GDP) of 0.3 in the first quarter of 2024 compared to the previous quarter. This is the strongest pace of growth in the last one and a half years and exceeds economists' consensus expectations. Year-on-year growth is 0.4% for the Euro Area and 0.5% for the EU.
GDP for the fourth quarter of 2023 was revised from zero growth to a contraction of 0.1%, confirming that the Eurozone was in a technical recession in the second half of last year. However, the latest growth figures suggest that the region has managed to narrowly avoid a prolonged recession.
France's Economic Rebound Stimulates Eurozone Growth
France, the Eurozone's second-largest economy, saw a surprising 0.2% growth in the first quarter, defying expectations of a contraction. This positive performance played a significant role in lifting the overall Eurozone GDP growth. The French economy's resilience was driven by stronger-than-expected consumer spending and business investment.
Inflation Remains Steady, ECB Rate Cut Expectations Rise
Despite the positive GDP growth, inflation remains a concern. The Eurozone annual inflation rate was 2.4% in April, unchanged from March. The core inflation rate, which excludes volatile items like food and energy, showed a slight decrease to 2.7% from 2.9%.
The steady inflation rates and the return to economic growth have significant implications for the European Central Bank's (ECB) monetary policy. Market expectations are leaning towards an interest rate cut, with a nearly 70% probability of a reduction in June, and even higher expectations for July or September. Several voting ECB members anticipate a rate cut in June to prevent an excessive economic slowdown.
Country-Specific Performance and Outlook
Among the Eurozone countries, Ireland led the charge with a commendable 1.1% growth compared to the previous quarter, followed by Latvia, Lithuania, and Hungary, all of which saw a 0.8% increase. Sweden, however, experienced a slight contraction of 0.1%.
The preliminary flash estimate of the first quarter of 2024 GDP growth is based on data from 18 Member States, covering 95% of the Eurozone GDP and 94% of the EU GDP. The next set of estimates for the first quarter of 2024 GDP growth will be released on May 15, 2024, which will provide further insights into the Eurozone's economic trajectory.
As the Eurozone navigates its way out of the recession, the focus will be on the ECB's monetary policy decisions and the region's ability to maintain the growth momentum while keeping inflation in check. France's surprising economic rebound has provided a much-needed boost to the Eurozone's growth prospects, but the path to a sustained recovery remains uncertain.