Rise in eurozone GDP signals broader recovery | Business| Economy and finance news from a German perspective | DW | 13.05.2015
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Rise in eurozone GDP signals broader recovery

It may be a watershed moment for the eurozone. Overall growth this quarter was led by France and Italy - not Germany. That could signal the eurozone has finally freed itself from the lingering effects of its debt crisis.

There was no denying on Wednesday that the eurozone's latest quarterly growth figures were good news. France surprised with unexpectedly robust growth, Italy finally emerged from a record-setting recession and Spain led the pack with a 0.9 percent uptick in gross domestic product (GDP).

Growth in the eurozone was up 0.4 percent compared to the last quarter of 2014, the European Union's statistical office said Wednesday in a flash estimate. It was the bloc's strongest performance since it returned to growth in the second quarter of 2013.

In fact, four of the bloc's largest economies all reported rises in GDP in the first three months of the year - the first time that has happened in five years. It was also the first time since early 2011 that combined GDP growth among the 19 countries that use the euro had outpaced that of both the United States and the United Kingdom.

Turning point

No sooner were the figures released than questions arose as to whether the overall uptick meant that the common currency union had finally achieved the necessary momentum to break itself free from the lingering effects of its debt crisis. Economists refer to such momentum as "escape velocity."

"It's a good start to the year but the jury's still out," said Teunis Brosens, a eurozone economist at ING. "We had, by European standards, a great first quarter but we still have to see to what extent it follows up in the second quarter."

One thing was for sure though - the bloc's recovery is becoming more balanced.

In the past, that recovery was largely reliant on Germany. But this time around, growth in the Continent's largest economy was far below economists' expectations, slipping to 0.3 percent from 0.7 percent at the end of last year.

That drop was countered by a return to expansion in France and Italy - economies that only months ago were either teetering on the brink of stagnation or still contracting. France grew by 0.6 percent, compared to zero growth in the last quarter of 2014, while Italy grew by a more modest 0.3 percent, emerging from 14 consecutive quarters of stagnation, Eurostat said.

Cautious optimism

Low oil prices, a weak euro and increased stimulus from the European Central Bank (ECB) were all drivers behind the improved activity, but there are still other factors that give some economists pause.

Some countries, notably Spain and Greece, still face record-high unemployment; others are struggling to cope with unsustainable debt burdens.

Those obstacles were highlighted by the European Commission on Wednesday, which released its annual economic policy recommendations for all EU members except those in bailout programs (Greece and Cyprus).

The executive said Germany's balanced budget created enough room to maneuver fiscally and do more public investing, specifically on beefing up the country's decrepit infrastructure. It also said France should capitalize on its newly positive numbers and use "all windfall gains for deficit reduction."

The Commission also said Italy was right to slow the pace of its fiscal consolidation so as not to endanger the country's delicate recovery, a vindication for Prime Minister Matteo Renzi's stewardship of Europe's third-largest economy.

Across the 28 countries of the EU, growth also hit 0.4 percent, the same level it had reached in the previous quarter.

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