Euro zone economy above pre-crisis peak as growth surges

BRUSSELS • Overcoming years of poor health and crisis, the euro zone economy grew at its fastest pace in five years in the first quarter, driven by unlikely stars such as France and Spain.

It now stands larger than it did at its peak before the financial crisis, albeit having taken eight years to recover. The bloc also slipped back into deflation this month.

Blowing past both the United States and British economies, the latter weighed down by uncertainty over possibly leaving the European Union, euro zone growth doubled from the previous quarter, beating the most optimistic expectations on healthy household consumption and a rebound in investments.

But the surge, a welcome relief less than a year after Greece was nearly ejected from the bloc, may be just a blip; Europe is still weighed down by debt, weak bank profits, high unemployment and excess capacity in the economy.

Nonetheless, growth among the 19 countries sharing the euro jumped 0.6 per cent on the quarter, well past expectations for 0.4 per cent and ahead of Britain's 0.4 per cent.

The US economy grew 0.5 per cent on an annualised basis in the first quarter. Annual euro zone growth held steady at 1.6 per cent, more than three times the US rate in the same period.

"Domestic strength in the euro zone economy is key to current economic growth," ING economist Bert Colijn said in a note. "This is mostly because of improvements in the job market."

Indeed, unemployment in the euro zone, though still high, fell to 10.2 per cent in March from 10.4 per cent a month earlier, its lowest in over four years, with Spain among the most improved.

The news was not all positive, however, as fresh inflation data showed the bloc was back in deflation this month, giving the European Central Bank (ECB) its single biggest headache as it struggles to boost prices.

Consumer prices fell by 0.2 per cent compared to a year earlier, moving down from an unchanged reading last month, even after the ECB unveiled fresh stimulus in December and March in hopes of boosting inflation, which has undershot its 2 per cent target for more than three years already.

Heading into the second quarter, the euro zone appears to remain on solid footing. Indeed, sentiment improved more than expected this month, driven by across-the-board optimism among industry, services, construction sector and households.

REUTERS

A version of this article appeared in the print edition of The Straits Times on April 30, 2016, with the headline 'Euro zone economy above pre-crisis peak as growth surges'. Print Edition | Subscribe