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Eurozone exits recession as ‘big four’ economies beat forecasts

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The eurozone has bounced back from its shallow technical recession after a stronger than expected performance by its “big four” economies in the first three months of 2024.

After two successive quarters of 0.1% contraction in the second half of 2023, the 20 nations that use the single currency posted growth of 0.3% between January and March.

Figures from the European Commission’s statistical agency – Eurostat – showed the eurozone had put in its best growth performance since the third quarter of 2022. Financial markets had been expecting 0.2% growth.

Lower energy prices, falling inflation, rising real wages and the prospect of cuts in interest rates helped to boost activity after a downbeat 2023 in which the eurozone only grew in one quarter.

Europe’s two biggest economies – Germany and France – grew by 0.2%, while Italy and Spain posted growth of 0.3% and 0.7% respectively. Germany’s performance in the final three months of 2023 was worse than originally thought: the economy contracted by 0.5% rather than 0.3%.

Of the smaller EU economies, the best performing were Ireland, which grew by 1.1% in the first three months of 2024, and Latvia, Lithuania and Hungary, which expanded by 0.8%.

Separate Eurostat data showed headline eurozone inflation remained unchanged in April at 2.4%, while core inflation – which excludes energy and food – came down from 2.9% to 2.7%.

Although the eurozone’s growth performance in the first quarter was stronger than the European Central Bank had been forecasting, analysts said lower inflation paved the way for interest rate cuts in the months ahead.

Sam Miley, the managing economist at the Centre for Economics and Business Research, said: “This morning’s confirmation of quarterly growth in the first quarter has put an end to a short-lived recession in the eurozone, with the economy having turned a corner since the beginning of 2024.

“Prospects are likely to improve further throughout the year, driven by the expectation of interest rate cuts.”

Andrew Kenningham, the chief Europe economist at Capital Economics, said: “While the eurozone’s mild recession appears to be over, we think the economy will expand at only a moderate pace over the rest of the year.”

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Some of the improvement in the first three months of 2024 was due to temporary factors, such as a rebound in construction, while business surveys also pointed to sluggish growth, Kenningham said.

UK first quarter growth figures are due out next week, with the financial markets anticipating 0.3% growth and an end to the mild recession recorded in the second half of 2023.

Figures from the Bank of England showed mortgage approvals for house purchases rose from 60,500 in February to 61,300 in March, taking them to the highest level since September 2022.

The Bank of England’s monetary policy committee will make its latest decision on interest rates next week, but is expected to leave official borrowing costs unchanged at 5.25%.

This article was amended on 1 May 2024. An earlier version said that Hungary was in the eurozone instead of in the EU.

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