The euro-area economy grew more than expected at the start of the year, though is yet to feel the full force of US president Donald Trump’s tariffs.
First-quarter gross domestic product (GDP) jumped 0.4 per cent from the previous three months – double the previous period’s gain – Eurostat said on Wednesday. Analysts had estimated a 0.2 per cent increase.
The outcome means the 20-nation bloc has boosted output for five consecutive quarters, with its biggest two members, Germany and France, both returning to growth. Looking ahead, however, business surveys suggest a weakening – mainly due to confidence-sapping uncertainty over the US’s intentions, compounded by the actual impact of the tariffs themselves.
European Central Bank chief economist Philip Lane said last week that trade tensions are unlikely to result in a recession for the currency bloc, but acknowledged that expansion would be lower than previously hoped.
He and his colleagues are weighing further interest-rate cuts after a seventh reduction in mid-April, with some expecting Trump’s levies to inflict lasting damage on the economy. Most remain confident inflation will sustainably return to the 2 per cent target this year.
Germany and France saw GDP rise by 0.2 per cent and 0.1 per cent in the first quarter – in line with expectations. Italy saw a bigger-than-anticipated increase of 0.3 per cent.
There were upbeat numbers across the euro zone this week: Estimates for Spain, the Netherlands, Belgium, Austria and Finland put GDP between 0.1 per cent and 0.6 per cent higher. Ireland’s reading – published on Tuesday – jumped 3.2 per cent.
But such assessments of Europe’s economic health offer little insight into the consequences of the US tariffs, the bulk of which were only announced on April 2. Uncertainty abounds, with many of the levies now paused pending the outcome of talks.
Separate figures showed how France’s sluggish economy is already dragging down inflation, which eased to 0.8 per cent in April from 0.9 per cent the previous month. That’s the lowest reading since February 2021 and will support calls for more reductions in ECB rates.
Data due Friday are expected to show euro-zone prices advanced 2.1 per cent from a year ago in April – down slightly from the previous month. But an underlying measure that strips out volatile elements such as energy is predicted to tick up to 2.5 per cent.
For Germany, the positive GDP number is a plus for incoming Chancellor Friedrich Merz after the IMF predicted Europe’s largest economy would stagnate this year. Bundesbank President Joachim Nagel has even warned of a third straight year of contraction due to the fallout from Trump’s trade policies, such as levies on cars.
Germany has been suffering for several years from flimsy global demand, the cut-off of Russian energy supplies, over-regulation and a dearth of skilled workers. There’s hope longer term, though, thanks to plans by the new government to spend hundreds of millions of euros on beefing up defence and infrastructure.
In France, upheaval caused by the US’s trade threats and U-turns has led the government to cut this year’s growth forecast to 0.7 per cent from 0.9 per cent. With a weaker economy, it’s also introduced more spending cuts in an effort to rein in the budget deficit.
The country was already disrupted by a political crisis that delayed the implementation of fiscal measures for 2025 and raised uncertainty over possible tax increases. Wednesday’s numbers for the January-March period revealed a decline in investment from businesses, households and the public sector, as well as a 0.7 per cent drop in exports.
Even so, Finance Minister Eric Lombard said the economy is on track to meet the growth forecast contained in this year’s budget.
“We’re in line to reach our objective of 0.7 per cent,” he told Sud Radio on Wednesday. “Investment and earnings publications are pointing in the right direction.” – Bloomberg
