FX.co ★ Eurozone Economy Recovers On Household Spending, Trade

The economy of the euro area experienced a rebound in the first quarter, driven primarily by household spending and favorable net exports, according to the latest data from Eurostat released on Friday.

Gross domestic product (GDP) rose by 0.3 percent from the previous quarter, reversing the 0.1 percent decline observed in the final quarter of 2003. This growth rate aligns with the second estimate published on May 15.

An analysis of expenditure revealed that household consumption increased steadily by 0.2 percent over the quarter, while government spending remained stable.

Net foreign demand contributed positively in the March quarter, with exports increasing by 1.4 percent, offsetting a 0.3 percent decline in imports.

However, a negative contribution came from gross fixed capital formation, which decreased by 1.5 percent in the euro area. Additionally, data indicated that changes in inventories contracted by 0.3 percent.

On an annual basis, economic growth improved to 0.4 percent from the previous 0.2 percent. This was consistent with the initial estimate for the first quarter, while the figure for the December quarter was revised up from 0.1 percent. The yearly expansion was driven by increases in household and government expenditures.

In the European Union, overall GDP grew by 0.3 percent in the March quarter after remaining flat in the preceding three months. The annual growth rate accelerated to 0.5 percent from 0.3 percent.

Among member states, Malta recorded the strongest quarterly economic growth with a 1.3 percent increase, followed by a 1.0 percent expansion in the Croatian economy.

Quarterly growth in employment remained unchanged at 0.3 percent in the first quarter, as previously estimated. However, the annual growth rate slowed to 1.0 percent from 1.2 percent.

The European Central Bank (ECB) on Thursday projected that Eurozone economic growth would reach 0.9 percent this year, 1.4 percent next year, and 1.6 percent in 2026.

This week, the ECB reduced interest rates for the first time since 2019, citing an improved inflation outlook. However, the central bank remains cautious about price developments given the persistently high inflation in services and steady wage growth.