Euro zone growth revised up to highest rate in 2 years

The headquarters of the European Central Bank in Frankfurt, Germany.
The headquarters of the European Central Bank in Frankfurt, Germany.PHOTO: REUTERS

BRUSSELS (REUTERS) - The euro zone economy grew by more than previously estimated in the first quarter and at its fastest rate in two years, EU statistics agency Eurostat said on Thursday (June 8), ahead of a European Central Bank (ECB) meeting that kept policy unchanged.

Eurostat said the 19-country euro zone expanded by 0.6 per cent quarter-on-quarter and by 1.9 per cent year-on-year. That compared with earlier estimates of 0.5 and 1.7 per cent respectively.

The higher figure resulted from revisions for France and Italy, with domestic demand the overall driver, particularly investment. Gross fixed capital formation was 1.3 per cent higher in the quarter and up 6.0 per cent year-on-year.

On an annualised basis, the euro zone economy was expanding at a rate of 2.3 per cent in the Jan-March period, far outstripping the 1.2 per cent rate of the United States.

Capital Economics said that purchasing manager surveys pointed to a potential pick-up to 0.7 per cent growth in the second quarter.

The first quarter growth rate was the highest since the first three months of 2015, when the ECB first began printing money to boost inflation and stimulate growth.

Solid economic growth but subdued inflation has left the ECB in a quandary. ECB President Mario Draghi is yet to be convinced that a recent rebound of inflation is durable because wage growth remains sluggish.

The ECB left its aggressive stimulus unchanged on Thursday, including its 2.3 trillion euro (S$3.5 trillion) bond-buying programme and sub-zero interest rates, despite resistance from cash-rich Germany. However, it did close the door to further rate cuts.

Eurostat said gross fixed capital formation contributed 0.3 percentage points, household consumption 0.2 points and government consumption 0.1 points to the first-quarter growth figure. The contributions of external trade and inventories was neutral.