Eurozone avoids recession while inflation holds steady at 2.4%

Eurozone: The streets of Charlottenburg, Berlin
The eurozone’s shallow technical recession is over after GDP shrank by 0.1% in both the third and fourth quarters of last year. (Sipa US, Sipa US)

The eurozone managed to escape recession, beating growth forecasts for the start of this year, it has been revealed. Gross domestic product (GDP) across the single currency bloc expanded by 0.3% in the January to March period, according to statistics body Eurostat on Tuesday.

This means that the eurozone’s shallow technical recession is over after GDP shrank by 0.1% in both the third and fourth quarters of last year.

It was also the eurozone’s strongest quarterly growth since the third quarter of 2022, lifted by stronger-than-expected growth in Germany, France, Italy and Spain.

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Output rose by 0.2% in Germany in the first quarter of the year, compared to the previous three months, while France’s economic growth accelerated by 0.2%, beating expectations. This was a pick-up on the 0.1% growth recorded in October to December.

Italian GDP grew by 0.3%, Spanish GDP increased 0.7%, Portugal’s GDP grew 0.7%, and Austria's figures also came in stronger than expected with an expansion of 0.2%. The wider European Union (EU) also grew by 0.3%.

"Ireland (+1.1%) recorded the highest increase compared to the previous quarter, followed by Latvia, Lithuania and Hungary (all +0.8%)," Eurostat said.

"Sweden (-0.1%) was the only member state that recorded a decrease compared to the previous quarter. The year on year growth rates were positive for nine countries and negative for four."

Sam Miley, managing economist and forecasting lead at Cebr, said: "Prospects are likely to improve further throughout the year, driven by the expectation of interest rate cuts."

The news comes as consumer price inflation across the eurozone remained at 2.4% in the year to April, matching March’s reading.

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Services inflation slowed from 4% to 3.7%, while food, alcohol and tobacco inflation picked up to 2.8% from 2.6%. Non-energy industrial goods prices rose by 0.9%, down from 1.1%.

Lower energy prices, following the surge in oil and gas after Russia’s invasion of Ukraine in 2022, are helping the economy.

Neil Birrell, chief investment officer at Premier Miton Investors, said: "Inflation in the Eurozone came in as expected but is proving to be stickier than might have been hoped for, mirroring experiences elsewhere.

"The economy is moving along nicely though, meaning that, all in all, the ECB will be able to stay on track to be the first of the major central banks to push the 'cut' button on interest rates, probably in June.

"The prospects for the Eurozone are on the up, at a time when there is doubt creeping in for other economies’ prospects.”

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