Eurozone escapes recession as France, Spain, Germany and Italy beat growth forecasts – business live

Key events

Here’s Mohamed El-Erian, chief economic adviser at Allianz, on today’s eurozone data:

Eurozone inflation sticks at 2.4%

Inflation across the eurozone was unchanged in April.

Eurostat reports that consumer price inflation was 2.4% per year, matching March’s reading.

Services inflation did slow, to 3.7% from 4% in March, but food, alcohol & tobacco inflation picked up to 2.8% from 2.6%.

Non-energy industrial goods prices rose by 0.9%, down from 1.1%.

Energy has less of a deflationary effect, though, with prices down by 0.6% year-on-year, from -1.8% in March.

Disappointingly, core inflation fell by less than expected. Inflation, stripping out energy, food, alcohol & tobacco, fell to 2.7% per year in April, down from 2.9%, but ahead of forecasts of a larger fall to 2.6%.

Eurozone escapes recession

NEWSFLASH: The eurozone has escaped recession, and beaten forecasts for growth at the start of this year.

GDP across the eurozone expanded by 0.3% in January-March, statistics body Eurostat reports.

This means the eurozone’s shallow technical recession is over – its GDP shrank by 0.1% in both the third and fourth quarters of last year.

It was lifted by stronger-than-expected growth in Germany, France, Italy and Spain (as we’ve been blogging since early this morning).

The wider European Union also grew by 0.3%.

Eurostat says:

Ireland (+1.1%) recorded the highest increase compared to the previous quarter, followed by Latvia, Lithuania and Hungary (all +0.8%).

Sweden (-0.1%) was the only Member State that recorded a decrease compared to the previous quarter. The year on year growth rates were positive for nine countries and negative for four.

UK mortgage approvals hit 18-month high

In the UK, mortgage approvals have hit their highest level since the chaos of Liz Truss’s mini-budget.

New Bank of England data show that lenders approved 61,300 in March, up from 60,500 in February, which is the highest total since September 2022.

There was also some relief for borrowers; the ‘effective’ interest rate – which is the actual interest paid – on newly drawn mortgages decreased by 17 basis points, to 4.73% in March.

Getting back to eurozone GDP….and Portugal has grown as a steady pace at the start of this year.

Portugal’s GDP grew by 0.7% in Q1 2024, the same rate as in Q4 2023, and was 1.4% larger than a year ago.

Earlier this month, Portugal’s new centre-right government predicted the economy would grow 1.5% in 2024. It is planning to roll out tax cuts for the middle class in an effort to spur growth and investment.

German sportswear brand Adidas has benefited from a sales pick-up in Europe and China, that helped it overcome a slowdown in the US.

Adidas hs reported that sales in Europe increased by 14% in the last quarter, while they grew by 8% in Greater China, but fell by 4% in North America.

Adidas CEO Bjørn Gulden reported that sales, gross margin, and operating profit were all better than expected, and warned that “markets are still volatile and not easy”.

Gulden adds:

We now look forward to celebrate the great sports events like the Euro 2024, Copa América, the Olympics and Paralympics. It is a great year for sports – let us all enjoy it!”

Italy grows by 0.3%

Next stop, Italy – where growth has accelerated at the start of this year.

Italian GDP grew by 0.3% in January-March, statistics body ISTAT reports, comfortably ahead of forecasts of 0.1% growth.

That’s the third quarter of growth in a row, although Italy’s economy was only 0.6% larger than a year ago.

ISTAT says:

The quarter on quarter change is the result of an increase of value added in agriculture, forestry and fishing, in that of industry and in services. From the demand side, there is a negative contribution by the domestic component (gross of change in inventories) and a positive one by the net export component.

Last month, revised data showed that Italy had actually achieved the best recovery of any major European economy over the last four years.

ING: The German economy can still grow after all

Carsten Brzeski, ING’s global head of macro, has welcomed Germany’s GDP report – saying it proves that its economy can still grow.

Brzeski says:

Just as some German children have been asking their parents whether they remember a time when the economy was actually growing, the first estimate of 1Q GDP growth came in at 0.2% quarter-on-quarter, from a downwardly revised -0.5% QoQ in the fourth quarter.

On the year, the German economy was still down by 0.2% when corrected for working days. There are no estimates for the GDP components but judging by the available monthly data, growth in the first quarter was mainly driven by the construction sector and net exports.

Brzeski is also confident that Germany’s economic cycle has started to turn for the better, after some tough quarters.

He says:

The words ‘optimism’ and ‘German economy’ together in one sentence have been a rarity for a long while. However, for a few weeks now, optimism has returned to the German economy.

Today’s GDP growth data is almost just the natural next step of stronger sentiment indicators and a pick-up in activity since the start of the year.

Germany returns to growth

Here comes the big one, Germany’s GDP report…

And Europe’s largest economy has returned to growth!

German GDP expanded by 0.2% in the first quarter of 2024, the Federal Statistical Office (Destatis) reports, beating expectations of 0.1% growth.

Destatis says this “modest growth” was due to an increase in gross fixed capital formation in construction and in exports, while household consumption fell.

This follows a deeper-than-first-thought contraction at the end of laast year. Destasis reports that Germany shrank by 0.5% in Q4 2023, worst than the 0.3% previously estimated.

The number of people out of work in Germany rose more than expected in April, Reuters reports.

Federal Labour Office figures this morning show that the number of unemployed grew by 10,000 in seasonally adjusted terms.

Analysts polled by Reuters had expected that figure to rise by 9,000.

The Czech Republic grew faster than forecast in the first quarter of this year – continuing the theme of the morning!

Czech GDP rose by 0.5% in January-March, beating forecasts of 0.4% growth.

Growth was driven by domestic demand, including higher spending by households and investment by businesses.

Vladimír Kermiet, Director of the National Accounts Department of the Czech Statistical Office (CZSO), says:

“The total final consumption expenditure and an increasing external trade balance contributed to the year-on-year growth. Conversely, a decrease in gross capital formation continued,”

As the Czech Republic isn’t in the eurozone, this won’t help euro area GDP (due at 10am UK time), but it’s another sign that the European economy is growing this year.

On an annual basis, the Czech economy was 0.4% larger than a year ago

Austria returns to growth

Austria’s growth figures are also stronger than expected.

Austrian GDP expanded by 0.2% in the first quarter of this year, better than the 0.1% which economists forecast.

This is the first increase in GDP in a year, after the economy shrank by 1.3% in the second quarter of 2023, by 0.3% in Q3 2023, and then stagnated in Q4 last year.

Growth was driven by private consumer demand, while Austria’s industrial economy remained weak and |”almost stagnated”, think tank WIFO reports, while investment demand declined again.

Separately, inflation in Austria has fallen to an average of 3.5% in April, its lowest level since September 2021.

Spain's economy expands by faster-than-forecast 0.7%

Just in: Spain’s economy has grown faster than forecast.

Spanish GDP rose by 0.7% in the first quarter of this year, new data from statistics body INS showed.

That’s rather faster than the 0.4% growth which economists had expected – an encouraging sign, especially after France grew faster than forecast (see earlier post).

INS also revised up Spain’s growth in Q4 2023, to 0.7% from 0.6%.

On an annual basis, Spain’s economy grew by 2.4%, mostly driven by “national demand”, with “external demand” contributing 0.2 points.

This stronger-than-forecast growth should cheer Spain’s prime minister, Pedro Sánchez, who yesterday announced he would stay on as PM despite a “harassment and bullying operation” being waged against him and his wife by his political and media enemies.

Volkswagen posts 20% drop in first-quarter profit

German carmaker Volkswagen has revealed that its operating profits slumped by a fifth in the first quarter of this year.

Europe’s top automaker was hit by lower sales and higher costs, but is sticking to its revenue and margin targets for 2024.

Arno Antlitz, Volkswagen’s CFO and COO, says the results “show a slow start to the year”, but he insists that new models will help the company this year:

A strong March, the solid order bank and the improving order intake in the past months are encouraging and should already have a positive impact in the second quarter.

We expect additional momentum over the course of the year from the launch of more than 30 new models across all brands.

Volkswagen’s earnings before interest and taxes (EBIT) dropped by 20% to €4.6bn, while sales were down 2%.

French inflation drops

French inflation has slowed, despite a pick-up in energy prices.

France’s consumer price index rose by 2.2% per year in April, statistics body INSEE estimates, down from 2.3% in March.

The decrease was partly due to a slowdown in the price rises of food (1.2%) and tobacco (9%), and also to a slight drop (-0.1%) in the cost of manufactured goods.

However, energy inflation rose to 3.8% from 3.4% in March, while services inflation stuck at 3%.

French minister: facts are stubborn. French growth is progressing.

France’s economy minister has hailed today’s news that the French economy grew more than expected in the first quarter.

Bruno Le Maire declared that the government’s strategy was working, after GDP rose by 0.2% in January-March.

Le Maire says:

“To all those who want us to believe that our economy is at a standstill: facts are stubborn. French growth is progressing.

“This is a new sign showing the solidity of our economy,…[the] government’s strategy is paying off.”

This is the second piece of good news to drop into Le Maire’s inbox in a week. Two major credit-rating agencies, Moody’s and Fitch, left France’s rating unchanged last Friday, despite concerns about its large national debt and deteriorating public finances.