Concept of Euro and EU flag

Initial data indicates that the 19-member Eurozone’s economy expanded in this year’s first quarter, skirting the recession that many analysts had predicted.

Growth continued into April, according to data from the month’s first half.

After flatlining in 2022’s final quarter, the region’s economy grew by 0.2 percent during the first three months of this year, according to the median estimate of 31 economists polled by Bloomberg.

France, Germany, Italy, and Spain—the zone’s four largest economies—all were seen as expanding in this year’s first quarter.

Official Eurozone first-quarter economic data is scheduled to be released on 28 April. 

The region’s economic resilience could help persuade the European Central Bank to proceed at its 4 May meeting with its expected half-point interest rate increase in its quest to beat back inflation.

Inflation during the first quarter is estimated at 6.7 percent in France, 7.8 percent in Germany, and 3.8 percent in Spain.

“A resilient economy means lingering labor-market tightness will keep underlying inflation higher for longer,” Bloomberg analysts wrote in a report last week. 

That resilience has persisted into April, according to the Hamburg Commercial Bank’s flash purchasing managers index (PMI).

The index has risen for the 11th consecutive month, reaching 54.4 from 53.7 in March. Readings above 50 indicate expansion.

The index also highlights a divergence between a “partly booming” services economy and a “weakening manufacturing sector,” Cyrus de la Rubia, the Hamburg bank’s chief economist, said in a statement, reflecting the effects of higher interest rates on the purchase of goods.

Employment in services grew in April at the fastest pace in 15 years, the Financial Times said.

In contrast, jobs in manufacturing increased at the slowest rate in 27 months; new orders fell at their steepest in the past four months.

Services businesses reported being able to increase their prices as needed, while manufacturers’ prices for their goods grew only slightly.

“Continued fast price increases, a still-resilient labor market, and signs the economy is weathering interest-rate hikes and tightening lending standards raise the chances that the ECB will tighten more than we expect,” economist Melanie DeBono at Pantheon Macroeconomics wrote in a note last week.

Members of the ECB’s rate-setting governing council have said their decision about whether to boost the rate, and by how much, will depend on data, including April’s inflation rate, due in early May.

TRENDPOST: Europe’s “growth” and “resilience” is balanced on a razor’s edge. Another ECB rate hike, especially by a half-point at a time when banks are tightening credit, will tip the region into a recession.

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