Slow down in services bills builds case for ECB to start cutting interest rates in June
Christine Lagard, president of the European Central Bank
The euro zone economy emerged from recession in the first three months of this year led by a revival in German, France and other big economies and helped by a recovery in Ireland.
The rebound was small. First-quarter gross domestic product (GDP) increased by 0.3pc from the previous three months, Eurostat said Tuesday.
Growth in Germany, France, Italy and Spain all exceeded analyst expectations. However, it came at the same time as separate data confirmed that inflation held stead in April, rising at the same 2.4pc pace as in March in line with analyst estimates. Services sector inflation, which is significantly affected by wages, slowed to 3.7pc in April after five months at 4pc.
The fairly benign Euro area inflation figures are in contrast to the US, where inflation has showed signs of reigniting that has tempered expectations for interest rate cuts there and may have a knock on in Europe in terms of the scale of ECB rate cutting this year.
Even so, the European Central Bank (ECB) now looks to be on course to cut interest rates here on June 6th and to follow that up with two or three additional rate cuts over the following months.
Softer inflation and lower borrowing costs should help underpin further growth in Europe, which is currently lagging well behind the US, although significant risks remain including potential fallout from the wars in Ukraine and Gaza.
Those conflicts could upend the interest rates path if they lead to a significant rise in energy costs or disruptions to shipping and supply chains, though so far the economy has managed to absorb any such fall out.
