Eurozone dodges recession amid German recovery

The eurozone grew faster than expected in the first quarter 2024 thanks to a recovery in Germany, bringing a shallow recession to an end. According to figures released by Eurostat, the eurozone grew 0.3 per cent between January and March, ahead of the 0.1 per cent expansion expected by economists.

This meant the single currency area moved out of a shallow recession recorded in the second half of 2023 after growth was revised down at the end of last year. The improved performance at the beginning of 2024 largely came thanks to an improvement in Germany’s performance. Having shrunk 0.5 per cent in the final quarter of last year, German GDP rose 0.2 per cent in the first quarter of 2024.

The French economy meanwhile showed a marginal improvement. Growth picked up from 0.1 per cent last quarter to 0.2 per cent. Spain continued to be the strongest performing large economy, notching a 0.7 per cent expansion.

Senior Europe economist at Pantheon Macroeconomics, Melanie Debono, said: “Growth is finally picking up and the rebound is even stronger than we thought as past revisions show it was actually in a shallow recession at the end of last year.” Although headline inflation was flat, there was progress on both services and core inflation. Services inflation fell to 3.7 per cent in April, down from 4.0 per cent in March, while core inflation dropped to 2.7 per cent from 2.9 per cent.

FX markets analyst at Ballinger Group, Kyle Chapman, commented: “A long awaited capitulation in services inflation is notable and should give rate-setters a dose confidence, given that concerns about persistent pressures in the sector had been touted as a significant hurdle to rate cuts.” With inflation approaching the two per cent target, traders think the European Central Bank (ECB) will start cutting interest rates in June.

Away from matters of the Eurozone – Firms in London lost some faith in their own trading prospects in April, which contributed to a significant drop in business confidence, a new survey showed. According to Lloyds Business Barometer, business confidence in the capital dropped nine points to 43 per cent in April, largely due to declining confidence in firms’ own trading prospects.

Business confidence in their own trading prospects fell 12 points to 45 per cent, while confidence in the wider economy dipped six points. This potentially reflects changing expectations on which the Bank of England will cut interest rates, with markets now expecting that rate reduction will start in August and fewer cuts priced in this year.

Regional director for London at Lloyds, Paul Evans, said: “London businesses are still facing a fair amount of economic uncertainty, but as we head into springtime, they should expect a seasonal boom in hospitality and tourism.” Although London business confidence declined, business confidence across the country as a whole remained unchanged for the third month in a row at 42 per cent. While the headline figure was unchanged, firms were slightly more confident in the wider economy and slightly less confident in their own trading prospects.

April’s figure was comfortably above the long-term average of 28 per cent, with only January 2024 seeing businesses report higher levels of confidence in the last twelve months. Senior economist at Lloyds, Hann-JU Ho, said: “We are beginning to see a consistent trend emerge from our Barometer results in recent months. Businesses are feeling increasingly confident about the economy, coinciding with falling inflation and hopes that interest rates will start to fall this year.” Easing price pressures and the prospect of interest rate reductions have contributed to an improving economic picture. Figures out last month showed that GDP grew 0.2 per cent over the past three months – the first time it has grown on a quarterly basis since last summer. (The writer is our foreign correspondent based in the UK) Word count: only the text, 628 words.