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Eurozone recovery picks up speed

Do Not UseDo Not Use 29/04/2016
EU flag © Getty Images EU flag

The eurozone's economy grew by a faster-than-expected 0.6% in the first three months of the year, according to official statistics.

Euro sign © Reuters Euro sign

The growth rate in the 19-nation bloc doubled from the 0.3% rate recorded in the previous quarter, and was above analysts' expectations of 0.4%.

However, separate data from Eurostat also indicated that deflation had returned to the eurozone.

Inflation in the bloc fell to minus 0.2% in April, down from zero in March.

Other Eurostat figures showed the eurozone's unemployment rate fell to 10.2% in March, the lowest rate for four-and-a-half years.

Uncertainties remain

The latest growth figures suggest that the eurozone's economy is now bigger than it was before the start of the financial crisis eight years ago.

The eurozone has recently benefited from a fall in oil prices and the euro, particularly in Germany.

Looser budgetary policies by government have also freed up resources in some of the region's debt-laden economies.

Howard Archer, economist at IHS Global Insight, said the eurozone should be able to sustain a growth rate of about 0.4% quarter-on-quarter in the future, but warned the rate could ease in the three months to June.

"Global economic uncertainties and problems are still a handicap for eurozone growth, not only through limiting exports but also through weighing down on business and consumer confidence," he said.

"The risk of recurrent terrorist attacks and the possibility of the UK voting to leave the EU in June's referendum are also uncertainties that could impact on eurozone growth."

ECB action

The inflation figures showed that energy prices fell 8.6% year-on-year in April, while unprocessed food prices rose 1.2%.

Stripping out those items, the core inflation rate showed consumer prices rose 0.8% year-on-year in April - less than a 1% increase in March.

The European Central Bank's target is to keep the headline inflation close to, but below, 2%.

In March, the ECB cut interest rates further and expanded its bond-buying stimulus programme in an attempt to drive growth in the eurozone and push up inflation.

Analysis: Andrew Walker, BBC economics correspondent

Deflation returns. Falling energy prices are keeping inflation very low for sure, but that was not what made the headline figure slip below zero once again.

Energy price falls actually slowed slightly. The key factor was a dip in services inflation to just 1%. Compare that with the European Central Bank's inflation target of below but close to 2%.

The gap between the data and the target is too wide for the ECB's liking. The view there is that there are economic costs when prices rise too slowly.

With luck the drop into negative territory might be a consequence of the early Easter, as some economists are saying. And at some stage the impact of oil price falls will stop dragging overall inflation down.

Still, the figures are a telling reminder of how the ECB is struggling to achieve its objective.

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