Eurozone GDP Growth Accelerates, Boosted by France, Italy
GDP growth in Germany, eurozone’s largest economy, eases to 0.3%
A return to expansion in France and Italy helped boost eurozone economic growth in the first three months of 2015 to its fastest pace in nearly two years, raising hopes that an uneven recovery is finally broadening in long-stagnant Europe.
Still, a stumble in growth in Germany—the eurozone’s largest economy and the region’s engine of growth in recent quarters—highlighted the fragility of the turnaround.
European policy makers, meanwhile, are urging France and Italy, the eurozone’s No. 2 and No. 3 economies, to exploit the recovery to push harder on economic reforms. Indeed, the European Union criticized France, Italy and three other countries on Wednesday for a variety of economic failings, including rigid labor markets and lagging competitiveness, as part of its annual recommendations to national authorities.
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For the first time since the first half of 2010, all four of the eurozone’s largest economies recorded growth, while Spain, which released figures earlier, is leading the expansion with a 0.9% growth rate. And for the first time since the first quarter of 2011, the currency area’s economy grew more rapidly than both the U.S. and the U.K’s.
A favorable mix of fresh stimulus from the European Central Bank, a sharply weaker euro and lower oil prices are feeding the faster and more evenly spread growth, bringing some relief to a region that has struggled to recover from its debt crisis.
The modest pickup in growth is expected keep the ECB on track to continue its €60 billion ($68 billion) a month asset-purchase program through September 2016 and avoid a potentially unsettling debate over whether to taper those purchases beforehand, said Luigi Speranza, economist at BNP Paribas. “These are good numbers, but they’re not spectacularly good numbers,” he said.
Still, policy makers worry that the recovery will remain weak and could even sputter when the ECB eventually takes its foot off the gas pedal if major countries—particularly France and Italy—don’t dig deeper into revamping labor rules and other changes to spur competitiveness.
“When you deal with structural problems, it takes time” for economic results to show, Yoram Gutgeld, a senior economic adviser to Italian Premier Matteo Renzi, said recently.
Greece’s economic troubles remain a risk for the region. The country fell back into recession in the first quarter, a reflection of the toll that Greece’s standoff with its creditors and uncertainty over the country’s solvency and euro membership are taking on its economy.
Greek gross domestic product fell by a seasonally adjusted 0.2% in the first quarter, following a 0.4% contraction in the fourth quarter. A recession in Europe is commonly defined as two or more successive quarterly contractions.
The combined GDP of the 19 eurozone countries was 0.4% higher in the first quarter than in the final three months of 2014, EU statistics showed on Wednesday. That marked a pickup from the 0.3% pace of the final quarter of last year, but was slightly weaker than the 0.5% forecast by many economists. On an annualized basis, the economy grew 1.6%.
But a hiccup in Germany’s growth raised concerns about how sustainable the region’s recovery is. The country’s GDP slowed more sharply than expected, registering just 0.3% growth compared with 0.7% in the previous period. Though wage increases and cheaper oil pushed German households to spend, weaker demand for German exports in the U.S. and parts of Asia curbed the expansion.
Economists at Barclays cut their full-year 2015 GDP projection to 1.5% from 1.8% following disappointing first-quarter GDP data.
“Investment growth in Germany is too weak and certainly doesn’t reflect buoyant expectations for around 2% GDP growth this year,” said Olaf Wortmann, an economist at the VDMA engineering federation, which represents more than 3,000 small- and medium-size companies.