Eurozone missing out on recovery with flat growth

Tim Wallace
Follow Tim

EUROPE is struggling to escape stagnation, with the sluggish French and shrinking Italian economies holding to continent back, official figures showed yesterday.

The Eurozone economies grew by just 0.2 per cent in the first three months of the year, well below the 0.8 per cent in the UK.

Germany led the Eurozone with growth of 0.8 per cent, while Poland led the non-euro countries with a strong expansion of 1.1 per cent.

But France’s performance was disappointing – its economy did not grow at all in the first three months of 2014.

Italy’s was even worse, contracting by 0.1 per cent. The country had only escaped recession at the end of 2013 when its economy expanded by 0.1 per cent in the fourth quarter.

Compared with the first quarter of 2013, the Eurozone economy has grown by 0.9 per cent.

However, that still leaves it around one per cent smaller than its pre-crisis peak – a poor performance compared with the UK which has almost overtaken its previous heights, and the US where output is six per cent higher than it was before the crash.

Economists expect the weak data to encourage the European Central Bank (ECB) to cut interest rates.

“A strong GDP read for the first quarter could have kept the ECB from acting,” said Rob Wood from Berenberg Bank. “But the growth figures add to likely downward revisions to the central bank’s inflation call. We see a 70 per cent chance that the ECB will ease policy in June, most likely by cutting interest rates further.”

Meanwhile the International Monetary Fund (IMF) advised France to push through more labour market reforms to make wages more flexible.

“Wage setting in enterprises should better align the wages of workers to their productivity,” the IMF report said.

“The minimum wage ensures workers earn a living pay but also weighs on the creation of jobs for the less productive workers. The indexation formula could be adjusted to take into account their high rate of unemployment.”