The Eurozone Economy Shows Signs of Modest Growth

Despite the improvement, the euro zone remains mired in a debt crisis that has seen unemployment rise to 12 percent.The euro zone's economy expanded by 0.1 percent in the first quarter, a slight improvement over the previous quarters flat output. However, the euro zone remains mired in a debt crisi

The Eurozone Economy Shows Signs of Modest Growth

Just a few short months ago, European governments were bracing for a possible downturn as Europe shifted away from Russian gas, and energy and food prices skyrocketed. The countries quickly stocked up energy reserves and the mild winter combined with massive conservation efforts helped Europe to avoid the worst.

Data show that, although slowly, the eurozone's economy is recovering its footing. In the first quarter of this year, investment and trade with other countries grew in major economies such as France and Germany. Both countries have not recovered as quickly as they should to become growth engines in the region.

Inflation, with a rate of 6,9 percent per year, remains a serious problem. The European governments had to intervene to provide subsidies to businesses and consumers to help them pay for expensive electricity and food bills. This added to the overall debt burden.

Next month, the European Central Bank will likely raise rates again, increasing the cost of doing businesses. In a recent report, the International Monetary Fund stated that Europe's greatest challenge will be to control inflation and avoid a recession.

Rory Fennessy is an economist from Oxford Economics. In a recent note, he said that he did not expect the growth rate to increase significantly over 2023. The robust start of 2023 in the industry is likely to be short-lived. Meanwhile, elevated inflation and tightening conditions will keep growth at bay this year.

Germany, one of Europe's largest economies, has been the hardest hit by Russia's war. The economy was flat in the first quarter after declining 0.5 percent during the last quarter of the year. The eurozone's biggest economy saw its growth contract by 0.1 per cent on an annual basis in the first three months of this year.

The French economy, which was impacted by strikes and protests across the country over President Emmanuel Macron’s decision to raise the retirement age, grew 0.2 percent. The foreign trade increased, and factories including glassmakers, which had temporarily shut down or slowed their production during the winter due to high energy costs, were reactivated.

In the first quarter of this year, the economies in Italy, Belgium, and Spain grew at a faster pace than in Portugal.

The first reading of the April inflation data will be released on Tuesday. This will provide new data about the price pressures within the eurozone. Inflation has declined in recent months due to lower energy costs, but food prices have been on the rise, reaching 15.4 percent last month. The core rate of inflation, which is a measure of inflation pressures underlying the headline figures, increased last month.

The European Central Bank's policymakers will closely examine the inflation data and the latest economic growth numbers when they meet on Thursday to determine interest rates. In March, at its last meeting, the European Central Bank raised interest rates by a half point, as part of its ongoing campaign to combat inflation. A second rate hike is expected.