FRANKFURT, Germany (AP) — Europe’s economy failed to gain any momentum in the first quarter, reinforcing
expectations that the European Central Bank will soon deploy fresh stimulus measures to shore up the
tepid recovery.
The economy of the 18 countries that share the euro saw output grow by only 0.2 percent in the first
quarter from the previous three-month period, the EU statistics office said Thursday
That marked the fourth straight quarter of expansion. But the rise was below economists’ expectations for
0.4 percent.
The slack eurozone nonetheless outperformed the United States, where stormy and cold winter weather meant
there was no growth at all, according to Eurostat.
A large chunk of the blame can be placed on a flat performance in France, Europe’s second largest economy
behind Germany. Between them, the two make up roughly half of the eurozone economy. France has lagged in
reducing worker protections and cutting labor costs for business — steps that have benefited other
eurozone economies.
A dismal 1.4 percent contraction in the Netherlands and a 0.1 percent decline in Italy did not help,
either. Elsewhere, Portugal’s economy slipped even as the country prepares to leave its bailout aid
program on May 17. Greece, its economy ravaged by excess debt and brutal austerity, saw its output
decline in annual terms by 1.1 percent. Greece doesn’t provide quarter figures but the annual rate of
contraction has been diminishing for a year now. There are hopes now that the country at the forefront
of Europe’s debt crisis will soon be recording some growth.
Without a stellar 0.8 percent rise in Germany and a solid 0.4 percent improvement in Spain, there may not
even have been any growth in the eurozone.
Tom Rogers, senior economic adviser to the EY eurozone forecast, said the numbers “should act as a
wake-up call for any eurozone policy makers tempted towards complacency about the road to recovery.”
“Stagnating output in Italy and France, two of the four largest economies, is in large part a result of
deteriorating cost-competitiveness, while Germany and Spain continue to reap rewards from reform
implemented either well before the crisis, or more recently,” he added.
Thursday’s figures are likely to strengthen arguments for the European Central Bank to cut interest rates
and take further stimulus measure at its next meeting June 5. The markets certainly think so and the
euro was down another 0.4 percent at $1.3665. A week ago, the euro was heading toward the $1.40 mark for
the first time in 2-1/2 years.
The ECB could cut its benchmark interest rate from what is already a record low of 0.25 percent. It could
also impose a negative interest rate for money banks deposit at the central bank, a step aimed at
increasing loans to households and businesses. The ECB could also purchase government or corporate bonds
on financial markets to add to the supply of money in the economy.
All those steps could help increase an inflation rate of 0.7 percent, which is well below the ECB’s goal
of just under 2 percent. Low inflation makes it harder for indebted governments to reduce their burdens.
It has also raised fears that the eurozone may fall into outright deflation, a crippling downward price
spiral that kills growth and business investment.
“The debate over ‘whether’ to act is surely over and it is now just a question of ‘how’ to act,” said
James Ashley, chief European economist at RBC Capital Markets.
The larger 28-country European Union grew by a slightly faster 0.3 percent from the quarter before, up
1.4 percent from the same quarter a year ago. The full EU performance was boosted by a 0.8 quarterly
increase in Britain.
The EU doesn’t publish annualized figures that show what the quarter’s growth would translate to for the
full year.