On Wednesday, data released by Eurostat showed that after a slight recession in the latter half of 2023, the Eurozone's GDP grew both quarter-on-quarter and year-on-year in the first quarter, with Germany, typically a lagging economy, also exceeding expectations.

The European Commission reported that the Eurozone is on track for a soft landing, with inflation declining faster than anticipated and economic growth expected to accelerate next year.

A Promising Start to 2024

According to revised data from Eurostat released Wednesday, the Eurozone and the European Union saw a 0.3% growth in GDP quarter-on-quarter after seasonal adjustments for the first quarter of 2024, indicating a recovery trend. This growth came after a 0.1% decrease in the Eurozone's GDP and stable performance in the EU during the fourth quarter of 2023.

Year-on-year, the Eurozone and EU both experienced a 0.4% growth in GDP after seasonal adjustments in the first quarter of 2024, exceeding expectations and significantly accelerating from 0.1% and 0.2% in the previous quarter, respectively.

Among the major economies in the Eurozone, Germany's economy continued to contract, with a 0.2% quarter-on-quarter decline in GDP during the first quarter, though it did not worsen from the previous quarter and was better than expected. France's economy showed accelerated recovery, with GDP growth rising from 0.8% in the previous quarter to 1.1%. Spain and Italy recorded quarter-on-quarter GDP growth rates of 2.4% and 0.6%, respectively.

The data also highlighted a slow recovery in employment. In the first quarter of 2024, employment numbers in the Eurozone increased by 0.3% quarter-on-quarter, with a 0.2% increase in the EU.

Compared to the same period last year, employment in the Eurozone grew by 1.0% and by 0.7% in the EU during the first quarter of 2024. This is a decrease from a 1.2% and 1.0% growth in the third quarter of last year, respectively.

Following the release of the data, the euro slightly appreciated against the dollar.

With inflation steadily declining, the European Central Bank is expected to start a cycle of interest rate cuts in June and continue cutting rates in the second half of the year. The market anticipates three rate cuts within the year.

Last month, ECB President Christine Lagarde told the media that the ECB is on track to cut rates soon, as inflation is slowing as expected. If there are no major shocks, rate reductions will commence shortly.

Soft Landing on Track? Deficit Still Widening

The European Commission forecasts that the Eurozone's GDP will grow by 0.8% this year and by 1.4% in 2025, almost unchanged from its last set of forecasts three months ago. Inflation expectations for this year and next have been revised down from 2.7% and 2.2% to 2.5% and 2.1%, respectively.

European Commissioner for Economy Paolo Gentiloni stated in a declaration that growth is expected to gradually accelerate this year and next, supported by declining inflation, restored purchasing power, and continued growth in employment.

However, he cautioned that public debt is expected to increase slightly next year, necessitating fiscal consolidation while protecting investments.

According to the latest EU forecast, the total budget deficit for the Eurozone is projected to be 3% in 2024 and 2.8% in 2025, higher than the previously forecasted 2.8% and 2.7%. France and Italy are currently facing larger deficits, while Germany and Spain are expected to have smaller gaps.

The commission mentioned that lower borrowing costs would stimulate investment activity while reducing the incentive for consumer savings, thereby boosting consumption. By 2025, average real wages in the EU are expected to fully recover to their 2021 levels.

The commission also noted that as global trade in goods improves over time, it should support the EU's external demand for goods, which in turn could help boost the sluggish manufacturing outlook in Europe.