Eurozone Posts 0.4% Growth in Q1; Recession Fears Ease

Mario Draghi, President of the European Central Bank
Mario Draghi, President of the European Central Bank (ECB) holds a news conference on the outcome of the Governing Council meeting at the ECB headquarters in Frankfurt, Germany April 10, 2019. (Photo: REUTERS)

The battered economies of the Eurozone grew at a surprising 0.4% in the first quarter, up from 0.2% in the fourth quarter of 2018 and up from 0.1% in the third, according to official data.

Most analysts predicted growth ranging from 0.2% and 0.4% in the first quarter. IHS Markit expected growth of some 0.2%. Analysts said the modest growth has dampened talks of a recession for the time being.

 Investors are eagerly awaiting the full first quarter data due on Tuesday for clear indications as to whether the Eurozone is in for more economic pain this year or will be blessed with a spell of welcome growth.

Spain on Tuesday reported preliminary data showing a 0.7% expansion of its economy in the first quarter. France posted 0.3% growth. Germany's growth remained flat while Italy is flirting with a recession.

Manufacturing is in the doldrums. Statistics show weak industrial production and weak composite purchasing managers' indices (PMIs).

 The last flash services and manufacturing PMI stood at 51.3 in April, down from 51.6 in March. The reading for March is the third-lowest since November 2014

IHS Markit, which compiles the PMI data, said new order growth remained unmoving.  New export orders fell sharply, manufacturing output declined, and employment growth improved only slightly.

The jobless rate during Q1 stood at 7.7%, a welcome dip from 7.8% in February, said Eurostat, the Eurozone's statistics agency.

As can be expected in a sea of gloom, business expectations are also grim with political uncertainty (including Brexit), Trump's trade wars and protectionism all combining to depress sentiment. Data released Monday revealed that economic sentiment fell "markedly" in both the Eurozone and the wider EU in April.

"There is clear evidence of a trade-related exogenous shock for the Eurozone economy, which cannot be easily dismissed in the aftermath of a good GDP reading," said economist Lorenzo Codogno, founder and chief economist at LC Macro Advisors.

He also believes any improvement in first-quarter growth might not be sustained. Some analysts have revised their estimate of GDP growth in the first quarter to 0.3% quarter on quarter.

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