Eurostat data released on Wednesday showed that after entering a slight recession in the second half of 2023, the eurozone's GDP grew in the first quarter year-on-year, and even the German economy, which has been lagging behind for a long time, exceeded expectations.
At the same time, the European Commission said in a report that a soft landing in the eurozone is on track, with inflation falling faster than previously expected and economic growth accelerating next year.
2024 is off to a good start, with GDP growth in the first quarter quarter-on-quarter
In the first quarter of 2024, the seasonally adjusted GDP of the eurozone and the European Union grew by 0.3% quarter-on-quarter, better than previously expected, and the economy is recovering, according to revised data released by Eurostat on Wednesday. In the fourth quarter of 2023, Eurozone GDP fell by 0.1%, while the EU remained stable.
On a year-on-year basis, seasonally adjusted GDP growth of 0.4% in both the eurozone and the EU in the first quarter of 2024 was also better than expected, significantly faster than the previous quarter's 0.1% and 0.2%.
Among the major economies in the eurozone, the German economy is still in a state of contraction, with GDP falling by 0.2% quarter-on-quarter in the first quarter, but it did not expand from the previous quarter and was better than expected; France's economic recovery accelerated, with GDP growth in the first quarter rising to 1.1% from 0.8% in the previous quarter. Spain and Italy grew their GDP by 2.4% and 0.6% quarter-on-quarter in the first quarter.
The data also showed that employment continued to recover slowly. In the first quarter of 2024, employment in the eurozone increased by 0.3% quarter-on-quarter, and in the European Union, it increased by 0.2% quarter-on-quarter.
In the first quarter of 2024, employment in the eurozone increased by 1.0% year-on-year and EU employment by 0.7% year-on-year, compared to a year-on-year increase of 1.2% in the eurozone and 1.0% in the European Union in the third quarter of last year.
The euro edged higher against the dollar after the release of the data.
At a time when inflation is steadily declining, the ECB is expected to start a rate cut cycle in June and will continue to cut rates in the second half of the year. The market expects three rate cuts this year.
ECB President Christine Lagarde told the media last month that the ECB is still on track to cut interest rates in the near term, that inflation is slowing as expected, and that if there is no major shock, the ECB will cut rates soon.
Is a soft landing on track? The deficit is widening
The European Commission forecasts that eurozone GDP will grow by 0.8% this year and 1.4% in 2025, little changed from the last set of projections three months ago; Inflation expectations for this year and next year have been lowered to 2.5% and 2.1% from 2.7% and 2.2% previously.
In a statement, EU Economic Commissioner Paolo Gentiloni said:
We expect growth to accelerate gradually this year and next, as private consumption is supported by lower inflation, a return to purchasing power, and sustained employment growth.
However, he warned:
Public debt will increase slightly next year, and fiscal consolidation will be needed while protecting investment.
According to the EU's latest projections, the eurozone's total budget deficit in 2024 and 2025 will be 3% and 2.8%, respectively, up from the previous forecast of 2.8% and 2.7%. France and Italy are currently facing larger deficits, and Germany and Spain are expected to have smaller shortfalls.
The committee said lower borrowing costs would stimulate investment activity while reducing consumer incentives to save and boost consumption. By 2025, average real wages in the EU will fully recover to 2021 levels, the report said.
The committee also said that an improvement in the outlook for global merchandise trade over time should support external demand for goods in the EU, which in turn could help boost Europe's weak manufacturing outlook.
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