Eurozone growth leapt ahead of the UK and US during the first three months of the year after cheap oil, a weak currency and a huge injection of funds by the European Central Bank pushed economic growth to 0.4%.
With only four countries slipping backwards, the 19-member eurozone’s recovery outstripped the 0.3% growth rate recorded by the UK and 0.2% by the US in the same period.
The rise in GDP was supported by tailwinds from falling fuel prices, which put extra cash into consumers’ pockets, and the export-boosting drop in the value of the euro. Another boost came from the ECB’s long-awaited €1.1tr (£790bn) monetary stimulus to bring down the cost of credit, while budgetary policies across the eurozone are not as stringent as they were just a year ago.
But is was unclear whether the improving growth rate could be sustained while several of the currency bloc’s major nations wrestle with high unemployment and even higher debts.
Peter Vanden Houte, an economist at ING bank, said: “Growth is clearly broadening across the eurozone. That said, the jury is still out whether growth has reached enough escape velocity to see a self-sustained recovery, as the first confidence indicators for the second quarter levelled off a bit, now that oil prices have increased and the euro exchange rate strengthened.”
This is how some of the eurozone economies fared in first-quarter growth this year:
Beating all expectations, France expanded at the fastest rate for two years leading finance minister Michel Sapin to say it would now beat its 2015 growth target. French exports slowed, however, and a depressed real estate market remained a drag on economic activity, the statistics office, INSEE, showed. Separate figures also revealed weaker than expected employment data, signalling a rise in unemployment beyond 10.4%.
IHS Global Insight economist Diego Iscaro said: “The sharp acceleration in activity during the first quarter ... points to growth in 2015 being somewhat stronger than expected by the government. However, we still do not estimate that the recovery will be strong enough to make a significant dent into France’s high unemployment rate”.
Economists at Natixis said exports had started to contribute positively to growth in the second quarter.
The eurozone’s third biggest economy grew 0.3% quarter on quarter, slightly more than expected thanks to a pickup in domestic demand. The figures fuelled hopes of a recovery this year after three years of recession.
Rome has benefited from being granted more deficit leeway by the EU Commission, which has supported its economic reforms. But Brussels emphasised that the year-old left of centre government of Matteo Renzi should move quickly to privatise state assets, use windfall gains to cut debt and implement an enabling law for tax reform by September 2015.
German growth more than halved to 0.3% from 0.7% in the fourth quarter of 2014. Net trade was a drag on Europe’s largest economy, with imports growing at a faster rate than exports due in large part to the slowdown in China. To speed up growth, Berlin was urged by the EU commission on Wednesday to spend some of its budget surplus and adopt expansionary policies.
Finance minister Wolfgang Schäuble has already confirmed the government will spend an extra €10bn on infrastructure, but critics of German austerity believe it could spend more revamping an ageing rail network and crumbling autobahns.
Spain, which published growth figures last week, recorded its fastest rate of expansion in seven years in the first quarter. It grew by 0.9% and is set to grow at almost twice the speed of the euro area this year. In Brussels, Madrid is considered the euro poster child, after it imposed strict austerity budgets, liberalised the labour market and tackled the legacy of bad debt held by banks since being hit by the crisis.
But unemployment has remained among the highest in the EU at 23% and many of the jobs created in recent years have been in the public sector and construction industry – repeating a pattern seen before the financial crisis.
The Greek economy shrank in the first three months of the year, plunging the troubled country back into recession following a 0.4% fall in GDP in the previous quarter. Analysts said it was clear that more than four months of wrangling over the terms of an extension to the country’s massive bailout programme has taken its toll.
This article was written by Heather Stewart and Angela Monaghan, for theguardian.com on Wednesday 13th May 2015 19.07 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010