Euro zone’s fourth quarter performance was revised lower
Euro zone economic growth was much weaker than expected in the first quarter and inflation remained locked in the ‘danger zone’ below 1% in April despite a modest pick-up.
The European Union’s Statistics Office estimated that the economy of the 18 countries sharing the euro expanded by only 0.2% on the quarter in the first three months of the year.
Economists had expected growth of 0.4% for the first quarter of the year.
Eurostat also revised down the economic growth rate for the last three months of 2013 to 0.2% quarter-on-quarter from 0.3%.
The weaker than expected economic growth adds to pressure on the European Central Bank to loosen monetary policy further to reduce the risks of deflation in a barely growing economy.
A breakdown by country of economic growth showed the overall picture in the euro zone was mixed.
Analysts had expected the euro zone economy to slow in the second quarter after picking up in the first.
Soft indicators, like weak industrial orders and business morale, illustrate how the €9.5 trillion economy struggles to gain stronger momentum, against the headwinds of high unemployment and geo-political risks like the crisis in Ukraine.
Separately, Eurostat confirmed that inflation accelerated in April to 0.7% on the year from 0.5% in March.
But it is still what the ECB calls the “danger zone” of below 1%, and well below the ECB’s target of close to, but below 2%.
Inflation was kept low mainly by falling prices of fuel for transport, as well as less expensive telecommunication services and vegetable costs, offsetting more costly packaged holidays, tobacco and electricity.
Inflation rose 0.2% month on month in April, with core inflation – which excludes energy and unprocessed food, – rising by 0.2%.
The strength of the euro, currently trading 14% stronger than its lows in the summer of 2012, is a large factor in keeping price growth subdued.
The ECB, which sees no outright risk of a deflation in the currency bloc, said it was ready to deploy all conventional and unconventional measures to fight low inflation, which is expected to stay below target until 2016.
The bank is preparing a package of policy options for its June meeting, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms (SMEs), people familiar with the matter told Reuters.