Eurozone: Real GDP Picks Up Again

The eurozone economy has finally started to expand again, although growth is still weak. After practically flatlining since fall 2022, in the first quarter of 2024 the eurozone posted its best quarterly real GDP growth since mid-2022.

If real GDP keeps growing after the first quarter, the eurozone will have managed to avoid a deep recession despite the rising cost of living, higher interest rates and uncertainty over issues such as the war in Ukraine. Of course, it recorded two successive quarterly declines of 0.1% in the second half of last year. However, neither of those drops was big enough to say the eurozone was in a real recession, especially since the labour market wasn’t particularly affected. Unemployment was at its all-time low of 6.5% in February, which is 0.3 percentage points below where it was two years before.

But it’s not all sunshine and rainbows in the eurozone. The lack of growth has had some repercussions. Business and consumer confidence remains relatively low, and there’s still some discontent among groups hit hard by the rising cost of living.

Yet weak growth had a favourable impact on inflation, which has been on a sharp downtrend for several quarters now. Consumer prices rose only 2.4% year-on-year, which is very close to the European Central Bank’s 2% target. This should make it easier for the ECB to start loosening monetary policy.

Some confidence indicators have been improving for several months, foreshadowing the increase in real GDP seen in today’s print. The eurozone’s composite PMI recently rose above the 50-point threshold—another hint that the economy was improving and a promising sign for the second quarter.

The preliminary flash estimate doesn’t include detailed information on GDP components. But it does offer more information on how growth was distributed over different countries. It shows us that Germany also returned to growth, with real GDP advancing 0.2% in early 2024 after contracting 0.5% over the previous quarter. Growth in France and Italy picked up slightly. The biggest gains were recorded in the eurozone’s smallest countries and in the Iberian peninsula.