Why it matters: The eurozone economy has regained its footing — for now.
Just a few months ago, governments across Europe were facing the possibility of an outright recession, as Europe moved away from Russian natural gas and energy and food prices soared. But countries quickly built up energy reserves, and a mild winter, combined with mass conservation efforts, helped Europe avoid the worst.
Data show the euro zone economy is regaining its footing – albeit slowly. Investment and foreign trade in major economies such as France and Germany expanded in the first three months of the year. But neither country has yet recovered fast enough to be the growth engines of the region.
And inflation, at 6.9 percent per year, remains a major problem. European governments should step in to help businesses and consumers with subsidies to help them cope with expensive electricity and food bills, which add to their overall debt burden.
The European Central Bank is expected to raise rates again next month, raising the cost of doing business. International Monetary Fund a Report It was published earlier this month that controlling inflation will be Europe’s biggest challenge while avoiding recession.
“We do not expect growth to be meaningful in 2023,” Rory Fennessy, European economist at Oxford Economics, said in a note. “A strong start to 2023 for the industry will be short-lived, while elevated inflation and tight financial conditions will cap growth this year.”
By country: Germany and France followed by Italy and Spain.
Germany, one of Europe’s biggest economies hit hardest by the war with Russia, was flat after contracting 0.5 percent in the final quarter of last year. On an annual basis, growth in the eurozone’s largest economy contracted 0.1 percent in the first quarter from a year ago.
In France, the economy expanded 0.2 percent, boosted by foreign trade and renewed activity at factories including glassmakers and other industrial sites, due to nationwide strikes and demonstrations against President Macron’s move to raise the minimum retirement age. Production or temporary shutdowns during the winter will increase energy costs.
Growth picked up in Italy, Belgium and Spain, and picked up further in Portugal, where the economy expanded 1.6 percent in the first three months.
What’s next: Central bankers set rates after reading economic signals.
New data on eurozone price pressures will arrive on Tuesday, with the release of a preliminary reading of inflation data for April. The annual inflation rate has been falling in recent months, helped by falling energy costs, but food prices have moved in the opposite direction, reaching 15.4 percent in March. The core rate of inflation, a sign of underlying inflationary pressures, rose last month.
That inflation data, along with the latest numbers on economic growth, will be closely scrutinized by European Central Bank policymakers who meet to set interest rates on Thursday. At its last meeting, in March, the central bank continued its campaign to rein in inflation. Another price hike is widely expected.