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Eurozone growth tops estimates as April inflation holds steady at 2.6%

Euro sign (file photo)
Euro sign (file photo) Copyright BERND KAMMERER/AP2007
By Piero Cingari
Published on Updated
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Eurozone economy grew by 0.3% in the first quarter of 2024, beating expectations and marking the strongest growth since Q3 2022. Annual inflation remained stable at 2.4%, while core inflation slowed to 2.7%, likely clearing the path towards the first ECB rate cut in June.


Economic growth in the eurozone exceeded economists' expectations in the first quarter of the year, while the annual inflation rate for April demonstrated stable performance compared to the previous month. This halted the downward trend that began in January, but it also provided some encouraging signs for an anticipated European Central Bank (ECB) rate cut in June.

According to flash estimates from Eurostat released on Tuesday, the annualised gross domestic product growth in the eurozone was 0.3% in the first quarter of 2024 compared to the final quarter of 2023. This marks a significant improvement from the previously reported 0.1% decline and exceeds economists' expectations of a 0.1% growth. It also represents the strongest pace of growth since the third quarter of 2022.

Simultaneously, preliminary data from the statistical office of the European Union indicated that the headline harmonised index of consumer prices (HICP) remained unchanged at 2.4% year-on-year, in line with expectations. The annual core inflation rate, which excludes energy and food items, declined slightly from 2.9% in March to 2.7% in April, slightly above the predicted decrease to 2.6%. Nevertheless, this marks the ninth consecutive month of declining annual core inflation rates for the broader eurozone.

Ireland leads, major economies grew more than expected

For the European Union, growth also came in at 0.3% in Q1 2024 compared with the previous quarter, accelerating from the previously flat reading.

Among member states, Ireland saw the highest increase at +1.1% compared to the previous quarter, followed by Latvia, Lithuania, and Hungary, all at +0.8%. Sweden was the sole member state to record a decrease, with a -0.1% change compared to the previous quarter.

Flash estimates from the Federal Statistical Office revealed that Germany's economy grew by 0.2% in the first quarter of 2024, surpassing market expectations of a 0.1% increase. This growth comes after a 0.5% contraction in the previous period.

Italy's economy rose by 0.3% in the first quarter, accelerating from a downwardly revised 0.1% growth in the final quarter of 2023 and surpassing market expectations of a marginal 0.1% expansion, as the National Institute of Statistics revealed.

The French economy grew by 0.2% quarter-on-quarter in the first quarter of 2024, exceeding both market forecasts and the previous quarter's growth rate of 0.1%, according to preliminary data from the French National Institute of Statistics and Economic Studies (INSEE).

April inflation signals potential ECB rate cut in June

The overall annual inflation rate in the eurozone was 2.4% in April, unchanged from March. On a monthly basis, inflation advanced at a 0.6% pace, decelerating from March’s 0.8% growth.

Core inflation slowed from 2.9% to 2.7% compared to a year ago. On a monthly basis, the core inflation rate rose at a pace of 0.6%, also sharply decelerating from the 1.1% recorded in March.

When looking at the main components of euro area inflation, services are anticipated to have recorded the highest annual rate in April (3.7%, down from 4.0% in March), followed by food, alcohol & tobacco (2.8%, up from 2.6% in March), non-energy industrial goods (0.9%, down from 1.1% in March), and energy (-0.6%, up from -1.8% in March).

In April, member states with the highest annual inflation rates were Croatia at 4.7% and Belgium at 4.9%. The latter surged from 3.8% in March and represented the highest reading in nearly a year.

Germany experienced a 2.4% annual HICP inflation rate in April, slightly surpassing both the previous and expected 2.3%.

France's annual HICP inflation remained steady at 2.4%, unchanged from March but above the anticipated 2.2%.

Italy saw a decrease in the annual HICP inflation rate from 1.2% to 1% in April, marking the third lowest reading after Finland (0.6%) and Lithuania (0.4%).

In the previous meeting, ECB policymakers signaled that "it would be appropriate to reduce the current level of monetary policy restriction" if data indicates increasing confidence that inflation is steadily converging towards the target.

Overall, April's inflation data may set the stage for the first ECB rate cut in June by surmounting the last hurdles.

However, continued caution may be necessary if monthly readings in both headline and core inflation persist at these levels in May and beyond. Such sustained levels could potentially hinder or even halt the ECB's rate cut cycle.

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