Over a year after Russia’s invasion of Ukraine, Europe’s economy is showing signs of avoiding the worst expectations that it will fall into a recession. The 20 countries that use the euro currency expanded slightly in the first quarter, despite high energy prices and a rise in the cost of most basic goods, Europe’s statistics agency reported Friday.
Still, Europe’s recovery remains fragile. And the European Central Bank’s efforts to cool inflation with higher interest rates are likely to suppress a more robust recovery across much of the continent in the months ahead.
Gross domestic product in the eurozone rose 0.1 percent compared with the previous quarter, when it was flat, according to preliminary data released by Eurostat. On a year-on-year basis, that’s a 1.3 percent increase compared with the 1.6 percent rise reported Thursday in the United States over the same period.
Why It Matters: The eurozone economy has regained its footing — for now.
Just a few months ago, governments across Europe were braced for the possibility of an outright downturn, as Europe pivoted away from Russian natural gas and energy and food bills skyrocketed. But countries swiftly stockpiled energy reserves, and a mild winter, together with mass conservation efforts, helped Europe avoid the worst.
The data show that the eurozone economy is regaining its footing — though only slowly. Investment and foreign trade expanded in big economies like France and Germany in the first three months of the year. But both countries are still not recovering as fast as needed to be growth engines for the region.
And inflation, at an annual rate of 6.9 percent, is still a major problem. European governments have had to step in to support businesses and consumers with subsidies to help them weather costly electricity and food bills, adding to their overall debt burden.
The European Central Bank is expected to raise rates yet again next month, raising the cost of doing business. The International Monetary Fund said in a report released earlier this month that Europe’s biggest challenge will be to tame inflation while avoiding a recession.
“We don’t expect growth to pick up meaningfully over the course of 2023,” Rory Fennessy, European economist at Oxford Economics, said in a note. “The robust start to 2023 for industry will likely be short lived, while elevated inflation and tightening financial conditions will keep a lid on growth this year.”
Country-by-country: Germany and France lag Italy and Spain.
Germany, which among Europe’s biggest economies has been hardest-hit by the impact of Russia’s war, was flat after contracting 0.5 percent in the final quarter of last year. On an annual basis, growth contracted in the first quarter from a year ago by0.1 percent in the eurozone’s largest economy.
In France, which has been buffeted by nationwide strikes and demonstrations over President Macron’s move to raise the minimum age of retirement, the economy expanded 0.2 percent amid a pickup in foreign trade and renewed activity at factories, including glassmakers and other industrial sites that had slowed production or temporarily shuttered during winter because of soaring energy costs.
Growth picked up in Italy, Belgium and Spain, and jumped further ahead in Portugal, where the economy expanded 1.6 percent in the first three months.
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