Eurozone economy's strong Q1 growth revised down slightly

LONDON – The eurozone economy didn’t expand quite as quickly as originally thought in the first quarter of the year but it still showed good growth that outpaced the U.S. during a period of global uncertainty.

Updated figures released Friday by Eurostat, the European Union’s statistics agency, showed that the 19-country economy expanded by a quarterly rate of 0.5 per cent in the January to March period. The revision from the initial 0.6 per cent estimate was largely anticipated in financial markets following weaker industrial production figures.

Though growth was lower than anticipated, the eurozone performed way better than the U.S., which according to Eurostat only expanded by a quarterly 0.1 per cent during the same period.

Because of the lower quarterly rate, the annual rate of expansion of the eurozone slipped to 1.5 per cent from the previous 1.6 per cent.

Despite the revision, Eurostat confirmed that the eurozone economy has recovered all the ground it had lost in the recessions over the past few years and that it’s now bigger than at the start of 2008, before the financial crisis.

There were several bright spots in the eurozone figures, including the news that the German economy, the region’s biggest, grew by a strong 0.7 per cent. And France, the eurozone’s number 2 economy, expanded at a healthy tick of 0.5 per cent. Even Italy managed to grow 0.3 per cent.

The only real disappointment in the country-by-country figures was that Greece’s economy contracted again during the quarter, a further sign that delays in the bailout program may be hurting sentiment in the debt-strapped country. Greece’s economy contracted by a quarterly rate of 0.4 per cent.

Eurostat did not provide a breakdown in terms of how different sectors performed but it seems that the eurozone, which is a net importer of crude, benefited from the fall in oil prices. The European Central Bank’s monetary stimulus measures also appear to be helping to boost lending, which is vital to business activity and growth. And governments are less focused on budget cutbacks that tend to weigh on growth.

“The ECB’s aggressive stimulus policy and governments’ reduced emphasis on austerity are supporting domestic demand and offsetting the drag from weak emerging markets,” said Bill Adams, senior international economist at PNC Financial Services Group.

Though Eurostat offered no breakdown by sector, German statisticians said their country’s growth during the period was largely due to private and government spending, along with investment in equipment and construction — the latter helped by relatively mild winter weather. Foreign trade weighed on German growth slightly despite the relative weakness in the value of the euro, with imports increasing more than exports.

Whether the economy will keep expanding at this rate will depend on a number of factors, many of which are external to the eurozone, such as the British vote on June 23 on whether to leave the European Union and China’s performance. Within the eurozone, worries over Greece’s future in the single currency bloc could flare up again and the upcoming Spanish general election may cause jitters.

Danae Kyriakopoulou, an economist at The Centre for Economics and Business Research, thinks the eurozone’s first quarter performance will “probably prove to be another false dawn for the troubled union” and highlighted worries over Greece and a growing rift between German politicians and the ECB over the central bank’s stimulus measures.