The eurozone economy is growing by 0.1% in the first quarter

The eurozone economy expanded by a marginal 0.1% in the first quarter of the year, preliminary figures showed on Friday, even as German gross domestic product (GDP) has held steady over the period.

The reading came in below analysts’ expectations, as a Reuters poll of economists previously forecast quarterly growth of 0.2%. The economy expanded 1.3% year over year, just missing expectations of 1.4%.

Earlier this month, the statistics agency Eurostat revised its estimate of fourth-quarter 2022 GDP for the eurozone from 0.1% quarterly growth to no growth, after growth of 0.4% in the third quarter.

The slight sign of growth in the first quarter comes as economic performance grapples with persistently high inflation. Energy prices have been a major driver over the past year, as European consumers have progressively lost access to Russian supplies in the wake of Moscow’s all-out invasion of Ukraine. The drop in wholesale energy prices, warmer-than-expected weather and fiscal stimulus helped the bloc avoid a widely feared recession over the winter, said Carsten Brzeski, global head of macroeconomics at Dutch bank ING.

But he noted that there are significant differences between individual countries, and said that future growth will be affected by the ongoing race between positive momentum in industry and wage growth on the one hand, and monetary tightening by the European Central Bank and recessionary risks in the United States on the other.

National figures on Friday showed that Europe’s leading economies diverged in their performance for the first quarter. German economy stagnant during the period from January to March, compared to the previous three-month period. German statistics agency Destatis said it rose 0.2% on an adjusted annual basis and 0.1% on an unadjusted basis due to one additional working day in the previous year.

Economists at Deutsche Bank said Germany had averted a technical recession by “a hair’s breadth” and reiterated their call for 0% GDP growth this year, with the economy slumped by high inflation, high interest rates and a recession expected in the second half from the United States.

Meanwhile, French GDP rose 0.2% in the first quarter, Medieval stats revealeddespite a series of widespread strikes that have slowed activity, which broke out in protest of pension reforms put in place by President Emmanuel Macron.

A notable weakness was Ireland’s GDP, which fell by 2.7% in the previous quarter, while the Portuguese economy grew by 1.6%.

GDP figures will be watched with interest ahead of the May 4 European Central Bank meeting, which seeks to tackle headline inflation at 6.9% and core inflation at a record high of 5.7%.

Some ECB policy makers have stressed that they think they should go ahead with rate hikes as they weigh 25bp or even 50bp next week. The collapse of several lenders across the US and Europe in March and the ensuing turmoil in the banking sector raised questions about whether central banks would have to slow or roll back interest rate increases.

The European Central Bank recently raised the three main interest rates by 50 basis points in March, bringing the main interest rate to 3%.

Nerves on the European front have largely settled and officials have emphasized the strength of the sector, although the shadow of deposit trips and more volatility continues.