Euro zone totters to 0.2% growth

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Stefan Riecher Frankfurt

The euro zone recovery failed to gather momentum in the first quarter as France unexpectedly stalled and economies from Italy to the Netherlands shrank.

Growth of just 0.2 percent for the bloc, half as much as economists had forecast, adds pressure on the European Central Bank (ECB) to deliver stimulus measures next month in its battle against weak inflation and anaemic output. While German expansion doubled to 0.8 percent, that was not enough to offset renewed weakness across the region, including a 0.7 percent drop in Portugal.

ECB president Mario Draghi primed investors last week for further stimulus next month, saying the 24-member governing council was “comfortable with acting” in June.

With the euro zone’s recovery from a record-long recession fragile, officials are battling to revive price growth, with the inflation rate less than half the ECB’s target.

“The recovery is more or less in train in most countries, but the headline number is disappointing and the horror show was the Dutch number,” Royal Bank of Scotland economist Richard Barwell said. “We think the ECB is going to act in June; we think it will be a package of measures.”

The euro pared losses against the dollar after the data were released, trading at $1.3674 at 11.21am in Brussels, down 0.3 percent on the day. The Stoxx Europe 600 index was down 0.1 percent to 341.21.

Dutch gross domestic product fell 1.4 percent in the first quarter, the sharpest contraction in the euro zone, Eurostat said. The Italian and Finnish economies shrank 0.1 percent and 0.4 percent, respectively.

Still, four quarters of growth have spurred some optimism among companies in the currency bloc.

Belgium’s Bekaert “expects sustained solid demand in Europe”, the world’s largest maker of steel cord for tyres said on Wednesday. “The upward trend in demand from automotive markets in Europe as of the second half of 2013, continued at the start of 2014.”

ThyssenKrupp, Germany’s largest steel maker, raised its full-year earnings forecast this week and reported the first quarterly profit in almost two years after selling assets and cutting costs.

Yet the euro zone continues to struggle with the legacy of the debt crisis. The unemployment rate was 11.8 percent for a fourth month in March, near the all-time high of 12 percent set last year. The annual inflation rate was 0.7 percent last month, Eurostat said in a separate report yesterday.

The euro zone economy will probably expand 0.3 percent in the second quarter, according to the median of 28 economists’ forecasts.

The euro zone recovery was “proceeding at a slow pace and it still remains fairly modest”, Draghi said last week in Brussels after the ECB left its benchmark rate at 0.25 percent and its deposit rate at zero. “There is consensus about being dissatisfied with the projected path of inflation.” – Bloomberg


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