Economic activities tend to pick up in the Eurozone and in the European Union after weak results registered at the end of 2023, with Romania recording in the first quarter of 2024 a 0.5% increase against Q4 of last year. Overall, EU GDP growth reached 0.3% in the first quarter, the same as in the Eurozone.
In the present analysis, CursDeGuvernare has compiled Eurostat data for all EU states in terms of 3 components: economic growth, industrial production and inflation:
The picture – composed in the table below – depicts both signs of recovery after the Covid crisis and Russia’s war in Ukraine, as well as the damage to price stability caused by this crisis.
In March, annual inflation in the EU fell to 2.6% and to 2.4% in the Eurozone, respectively. However, Romania recorded the highest inflation in the EU for the fourth month in a row, of 6.7%. The European Commission estimated in its spring prognosis that EU inflation would moderate faster than previously expected, while the outlook for economic recovery would remain intact.
Eurozone to return to growth, pulled up by southern states. Germany and France – on the verge of stagnation
The Eurozone economy is expected to return to growth in 2024, as faster progress of countries in southern Europe will offset German economy stagnation, shows the European Commission’s spring forecast.
The Commission estimated that the Eurozone would grow by 0.8% this year, a value unchanged since the winter forecast, compared with only 0.4% recorded last year. The Commission expects an advance of 1.4% for next year.
Germany, the largest economy in the Eurozone, will be close to stagnation in 2024, having undergone a slight recession last year, while French economy will also register modest growth this year.
Overall, Eurozone growth will be fueled by better performance of peripheral economies. Portugal is expected to increase by 1.7%, Spain, by 2.1%, and Greece, by 2.2%, according to the latest forecast.
“With economic expansion in the southern rim of the EU still outpacing growth in north and western Europe, economic convergence within the EU is set to progress further”, adds the Commission.
Paolo Gentiloni, Commissioner for Economy, stated: “The EU economy perked up markedly in the first quarter, indicating that we have turned a corner after a very challenging 2023. We expect a gradual acceleration in growth over the course of this year and next, as private consumption is supported by declining inflation, recovering purchasing power and continued employment growth”, he adds.
Inflation is projected to continue declining over the next two years and at a slightly faster pace than had been forecast in February. Subsequently, from 5.4% in 2023 it is forecast to fall to 2.5% at the end of the year and reach 2.1% in 2025.
“Rapid fall in retail energy prices throughout 2023 was the main driver of the inflation decline, but underlying inflationary pressures started easing too in the second half of 2023, amidst the weak growth momentum”, shows the Commission forecast.
The European Central Bank is expected to cut interests as of next month as a consequence of the clear tendency of inflationary pressure easing.
Industrial production, on the verge of shifting
In March, industrial production went up 0.6% against February, but was heavily influenced by the strong progress of Irish industry which is extremely volatile, however. Industry seems to have hit the minimum in the first quarter, while economists expect to see modest recovery in the second half of the year.
The increase in production in March comes after another increase recorded in February. But this was not enough to compensate the sharp drop registered in January, industrial production still standing 1.6% below the level of December. Overall, the industry did not manage to reverse the downward trend it entered at the end of 2022.
A big portion of the positive result in March comes from the 12.8% increase of Irish industry. However, this is very volatile due to the nature of Irish industrial activity. Large economies, Germany, Spain, France, Italy and the Netherlands, registered declines, showing that fundamental weakness persists in the European industry for the time being.
However, the latest surveys show that a minimum point may have been reached. Companies indicate that the production drop rate is more moderate and producers also point to mild optimism fueled by the volume of new demand.
Although it cannot be said for now that the EU is beginning to recover in terms of industrial production, such a recovery is likely to begin in the second half of the year. Household consumption is set to receive a boost from the higher advance in real wages, with demand for goods expected to increase as well.
ECB warns against risks: Election year in the EU and geopolitical tensions
Geopolitical tensions and the series of elections worldwide increase the risk that investors be shaken by negative surprises and endanger financial stability, warns the European Central Bank.
Financial markets have seen such risks with a relaxed attitude so far, remaining exposed to sudden shifts brought on by shocks, according to the ECB analysis on financial stability issued on Thursday, writes Bloomberg. Moreover, ECB warned that elections for the European Parliament and national elections increase uncertainties regarding the direction of public finance.
“The scope for adverse economic and financial surprises is elevated, and the risk outlook for Euro area financial stability remains fragile accordingly”, writes ECB vice-president Luis de Guindos in the report. “Yet sentiment can change rapidly, not least given the geopolitical environment, which creates the potential for large market reactions to disappointing news”.
Global perils have increased with Russia’s invasion in Ukraine in 2022, the Middle East being a hot spot of late. Elections – including Donald Trump’s running bid for the White House in November and the polls for the election of the new European Parliament next month – add even more uncertainty to the mix. Despite this context, the chances of a soft landing in Europe have increased as inflation eases towards the 2% target, without a deep recession or unemployment increase for now.
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