by Francesco Canepa and Belén Carreño

FRANKFURT/MADRID (Reuters) – The eurozone economy barely grew in the first quarter while inflation remained elevated within the bloc, leaving the European Central Bank with no other options ( ECB) than to continue its monetary tightening.

In the first quarter, the gross domestic product (GDP) of the 20 countries sharing the euro grew by only 0.1%, as consumer spending stagnated in many economies, a sign that inflation and the drastic rise in interest rates are beginning to hit households hard.

The growth recorded comes mainly from exports resulting from the recovery of world trade after the post-pandemic reopening of China.

But national price data shows that inflation remains stubbornly high, which should lead the ECB to raise rates further despite the slowing economy.

“Inflation data from each country keeps the pressure on the ECB to remain aggressive on raising rates at its next meeting next week, despite growth in the euro zone not far from stagnating,” observes Charles. Hepworth, manager at GAM Investments.

The ECB is widely expected to raise rates for the seventh time in a row after its May 4 meeting, with the debate centering on a 25 or 50 basis point hike.

Inflation figures released on Friday for the month of April show that progress has been slow.

In Germany, the rise in harmonized consumer prices in April slowed more than expected, to 7.6% over one year and 0.6% over one month. In Portugal and Ireland, inflation has also slowed markedly.

On the other hand, inflation increased over one year in France and Spain, due in particular to the reduction or cessation of financial aid for energy prices. The only positive element is that the rise in food prices seems to have slowed in both countries.


Money markets are currently pricing in an additional 70bp rate hike from the ECB by October, which could be followed by a first cut at the end of the year.

The International Monetary Fund (IMF) for its part on Friday called on the Frankfurt institution to continue raising its rates until mid-2024.

The fund also pleaded for the finance ministers of the European Union, who met Friday in Stockholm, to tighten their budgetary policy in a concerted action to curb inflation, at the risk of weighing even more on consumption.

Economists believe that the rate hikes made so far by the ECB and the other major central banks should already weigh on economic activity in the coming months, and could even lead to a recession.

“In the second half of the year, massive interest rate hikes by central banks around the world are expected to dampen growth,” said Christoph Weil, economist at Commerzbank.

Germany, the eurozone’s largest economy, has already stagnated in the first quarter as lower government and household spending offset rising exports and investment.

Southern Europe fared better thanks to the rebound in exports, with an acceleration observed in Italy, Spain and to a lesser extent in Portugal.

France, for its part, showed resilience with growth of 0.2% in the first quarter, in line with expectations.

(With contributions from Miranda Murray and Maria Martinez in Berlin, Andrei Khalip in Lisbon, Geert de Clercq in Paris, Blandine Hénault for the , editing by Kate Entringer)

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