Eurozone outpaces U.S. in first quarter

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PAN PYLAS LONDON • The eurozone, for so long a laggard in the global economy, outpaced the United States in the first quarter of the year and is widely expected to pick up further steam in the months ahead.

The single currency bloc of 19 European countries expanded by a solid, if unspectacular, quarterly rate of 0.5 per cent in the first three months of the year.

The increase reported Wednesday was in line with expectations but may prove a slight disappointment to some in the markets following a run of other strong data. A number of economists had predicted a pickup in the rate of growth from the previous quarter’s 0.5 per cent.

Still, the eurozone grew faster than the U.S. economy, which during the first quarter expanded by 0.7 per cent on an annualized basis, way below the eurozone’s equivalent of about two per cent.

The eurozone economy has been expanding steadily since 2013 but has failed to push into a high gear, largely because it battled with skyhigh debts in many countries, notably Greece.

No country breakdown was provided by Eurostat on Wednesday but surveys have shown that the recovery is becoming broader-based across sectors and countries. Germany, the eurozone’s biggest economy, remains the fulcrum and its sustained economic expansion is expected to continue through to the country’s general election later this year.

A string of general elections in key eurozone states has been identified as a potential risk to economic growth this year, as populist or extremist parties could endanger the region’s commitment to the euro. So far, defeats for populist politicians in Austria and the Netherlands have shored up confidence in the markets that there won’t be a lurch toward a breakup of the single currency.

There are hopes the eurozone will pick up in the second quarter following surveys indicating an uptick in April, particularly in France.

The prevailing view in the markets is that a victory in Sunday’s presidential election for centrist Emmanuel Macron over Marine Le Pen from the far-right could further boost the eurozone’s second-biggest economy.

Jay Bryson, global economist at Wells Fargo Securities, said that in the event of a Macron victory, which opinion polls say is likely, “a downside risk to the French economy, and the eurozone will have faded.”

Once the French election is out of the way, the European Central Bank could start considering when to rein in its stimulus measures.

The bank has slashed interest rates, including its main one to zero, and embarked on a massive government bond-buying program to get inflation to its goal of just below 2 per cent.

Figures released last week showing inflation at 1.9 per cent have ratcheted up expectations that the bank will soon be ready to consider easing off the stimulus.