Eurozone inflation is 'stuck' at 2.4% and GDP beats forecasts by growing 0.3%

MADRID, 30 Abr.

Eurozone inflation is 'stuck' at 2.4% and GDP beats forecasts by growing 0.3%


The inflation rate in the euro zone stood at 2.4% year-on-year in April, in line with the rise in prices observed in March and anticipating the difficulty of the last stage of the disinflation process in the euro zone, which in the first quarter of the year grew by 0.3%, leaving the recession behind, according to preliminary data published today by the community statistics office, Eurostat.

In the case of prices, the evolution of year-on-year inflation reflects a smaller year-on-year fall in the cost of energy, which in April moderated its decline to 0.6% from the decline of 1.8% in March, while food fresh products became more expensive by 1.3%, after having fallen by 0.5% last month.

However, the annual increase in the cost of services has eased to 3.7% in April after having remained at 4% for the previous five months, while the rise in the price of non-energy industrial goods eased to 0.9% from 1.1%.

In this way, the euro zone inflation rate when discounting the impact of energy would have been 2.7%, compared to 2.9% in March 2024, while also excluding food, alcohol and tobacco, the underlying rate would have fallen to 2.7% from 2.9%.

Among the eurozone countries, the lowest year-on-year inflation readings in April correspond to Lithuania (0.4%), Finland (0.6%) and Italy (1%), while the most intense price increases have been recorded in Belgium (4.9%), Croatia (4.7%), Austria and Spain (3.4% each).

In this way, the price differential unfavorable to Spain with respect to the eurozone has widened by one tenth, up to one percentage point.

In this sense, Bert Colijn, senior eurozone economist at ING Research, considers that "a more confusing picture is emerging on inflation as we approach the 2% target" given that the GDP growth announced this Tuesday has been higher than expected, demonstrating that domestic demand continues to show signs of recovery, which could make inflation more persistent.

Thus, although the ECB usually boasts of its dependence on data, for the next decisions on rates "it really will be", since the April inflation reading represents "a warning" that the entity will be careful with the rate cuts and may take time to normalize them.

"With an economy showing signs of recovery and unemployment at historic lows, the ECB can afford to do so," says Colijn, who still expects a first rate cut in June, but anticipates that the ECB "will remain extremely cautious." ".


At the same time as the preliminary inflation data for the month of April, Eurostat has published the first reading of the GDP growth of the eurozone between January and March, when the eurozone grew at a rate of 0.3%, which allowed the region leave the recession behind, after the 0.1% contraction in the last two quarters of 2023, and exceed market expectations.

Likewise, for the European Union (EU) as a whole, GDP growth between January and March accelerated to 0.3% after the stagnation observed in the fourth and third quarters of last year.

Compared to the first quarter of 2023, Eurozone GDP growth was 0.4%, while for the Twenty-seven it was 0.5%.

Among the Member States for which data was available for the first quarter of 2024, Ireland (1.1%) recorded the largest increase in GDP compared to the previous quarter, followed by Latvia, Lithuania and Hungary (all 0.8 %).

For its part, Sweden (-0.1%) was the only Member State that recorded a decrease in GDP compared to the previous quarter.

Among the main EU economies, Spain once again led the expansion, with GDP growth of 0.7% in the first quarter, compared to 0.2% for Germany and France, while Italy grew by 0.3% .

In general, southern Europe seems to have once again outperformed the north, notes Bert Colijn, for whom the encouraging GDP data for the first quarter puts the eurozone on track for a better-than-expected growth rate for 2024, along with inflation that remains relatively benign and unemployment at historic lows.

"The economic environment in the eurozone is looking upwards," he summarizes, although he warns that this should not be exaggerated, since, unlike what happened after the pandemic, a vigorous recovery is not underway and the economy is still suffering a weak global demand, while real wages have not recovered 2021 levels and interest rates are still being adjusted.

For his part, Alexander Valentin, senior economist at Oxford Economics, highlights that the expansion was broad among the large economies of the eurozone in the first quarter. "We believe that this marks a turning point after the slight recession in the second half of 2023," he highlighted.

"GDP recorded the highest growth in more than a year and core inflation continued to decline (...) The continued disinflationary trend that has finally begun to include services inflation will provide more ground for an ECB cut cycle that will begin in June," he points out.