The eurozone economy has emerged from recession with stronger-than-expected growth in the first quarter of 2024. At the same time, inflation has been contained.
Many economists agree that these data will force the European Central Bank (ECB) to cut interest rates in June, as many had predicted.
The EU's official data agency reported that interest rates rose by 0.3 per cent quarter-on-quarter in the first three months of 2024.
Analysts polled by FactSet and Bloomberg had expected growth of just 0.1 per cent. However, the data showed that the eurozone economy slipped into a technical recession in the second half of last year, after gross domestic product fell 0.1% in the last two quarters of 2023.
The stronger-than-expected growth followed good news on consumer prices. Eurostat said the eurozone's annual inflation rate was unchanged at 2.4 per cent in April from the previous month, in line with economists' expectations. The rate is close to the ECB's target of 2%.
Inflation in the eurozone has fallen sharply from a peak of 10.6 per cent in October 2022, following the outbreak of the conflict between Russia and Ukraine and the ensuing energy crisis. The ECB has aggressively raised interest rates since July 2022 to curb rising prices, but has frozen borrowing costs in recent months amid growing calls for rate cuts.
Today's stronger-than-expected first-quarter GDP data means the eurozone is out of recession, but with core and services inflation slowing, it won't stop the ECB from starting its easing cycle in June," said Andrew Cunningham of London-based consultancy Capital Economics.
Recall that the ECB left all three key interest rates unchanged at the end of its meeting on 7 March.
European Central Bank President Christine Lagarde said the decision to cut them was likely to be taken at the June meeting. She emphasised that much more economic data, particularly on wages and profits, would be forthcoming.
The ECB's latest staff projections for eurozone inflation have been revised downwards, especially for this year, mainly due to a lower contribution from energy prices. The institution expects inflation to average 2.3 per cent in 2024, 2 per cent in 2025 and 1.9 per cent in 2026.