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Eurozone upswing still fragile

April 29, 2016

Robust growth in some eurozone countries supported the 19-member currency bloc's recovery in the first quarter, driving down rampant unemployment. But a further drop in inflation shows that the upswing remains fragile.

Symbolbild Eurozeichen mit Rost
Image: Fotolia/K.F.L.

Between January and March, gross domestic product (GDP) in the eurozone expanded by 0.6 percent quarter-on-quarter, according to official data released Friday by the EU's statistics office, Eurostat.

On a yearly basis, output even accelerated at a rate of 1.6 percent, showing that the sluggish economy in the debt-laden currency area may be shifting into a higher gear. In the final three months of 2015, the eurozone still logged more moderate growth of only 0.3 percent.

Growth slowdown in Germany?

Some laggards catching up

While Europe's biggest economy, Germany, continued humming along at a rate of 0.5 percent in the quarter, France has surprised, with output expanding more than expected at 0.5 percent.

Notably consumer spending picked up at the beginning of the year as the French splurged on clothes, cars and housing equipment, the INSEE national statistics agency said in a preliminary growth estimate also released on Friday.

Consumer spending rose 1.2 percent, the French data showed, supported by lower energy bills after a mild winter.

Hopes for a sustained upswing in Europe's second largest economy were also fuelled by an increase of 1.6 percent in business investment - the strongest increase in five years.

More specifically, investment by companies in the manufacturing sector surged by 3.3 percent - the highest since the spring of 2006. The government's growth target of 1.5 percent for the full year now looks within reach, barring a sharp slowdown for the remainder of the year.

Official figures from Spain on Friday also gave reason for optimism showing Europe's fourth-largest economy expanded by 0.8 percent - its 11th consecutive quarter of growing GDP. Spain emerged from recession in late 2013 and is now one of the EU's fastest growing economies.

Eurozone jobs crisis eases

The healthier eurozone economy has also driven down rampant unemployment in the currency area, which reached its lowest level in nearly five years, falling to 10.2 percent in March.

Although coming down from a record high of 12.1 percent in 2013, the number of jobless people is still too high, with 16.4 million out of work. Especially youth unemployment remained rampant in March, at a rate of 21.1 percent.

While Germany and the Czech Republic recorded the lowest jobless rates among people under 25 - 6.9 percent and 9.8 percent respectively - Greece and Spain continued to report the highest figures with 45 percent and 21 percent.

Deflation - When everything becomes cheaper!

Fear of deflation looming again

Further evidence that the period of stagnation in the eurozone is far from over came from the latest inflation figures also presented by Eurostat on Friday.

The prices of goods and services slipped back into negative territory in April, declining by 0.2 percent over April 2015, and leaving the bloc with its second month of deflation this year after February.

The April drop was again driven by falling energy prices which declined 8.6 percent on the year. This was only partially offset by gains in prices for food, alcohol and tobacco products, as well as for services and non-energy industrial goods.

Deflation is bad for an economy because consumers might withhold purchases in anticipation of further falling prices, thus reducing investment by businesses and driving up unemployment.

The eurozone inflation rate is way below the European Central Bank's target of 2 percent, which it considers healthy for economic growth. Some analysts said it also showed that the ECB's recent round of monetary stimulus, including negative interest rates and massive asset purchases, didn't seem to be fuelling the eurozone recovery yet.

uhe/cjc (dpa, AFP, Reuters)