Eurozone GDP Growth Accelerates, Boosted by France, Italy

By Paul Hannon and Stacy Meichtry 

        A return to expansion in France and Italy helped boost eurozone economic growth in the first three months of 2015 to its fastest pace in almost two years, broadening a modest revival that had previously been heavily reliant on Germany.
        For the first time since the first half of 2010, all four of the eurozone's largest economies recorded growth. And for the first time since the first quarter of 2011, the currency area's economy grew more rapidly than both the U.S. and the U.K.
        That combination of faster and more evenly spread growth will feed hopes that 2015 could mark a decisive year for the eurozone in its efforts to recover from its debt crisis, aided by fresh stimulus from the European Central Bank, lower oil prices and signs that bank lending may be set to increase after years of decline.
        However, policy makers have openly expressed worries that the recovery may not be sustained, citing high unemployment, high government and corporate debt burdens, banking-system problems and weak investment spending. They contend that politically difficult overhauls in France and Italy, and an increase in investment in crumbling infrastructure in Germany and elsewhere, are the only way to achieve lasting growth in Europe.
        The combined gross domestic product of the 19 countries that shared the euro was 0.4% higher in the first quarter than in the final three months of 2014, the European Union's statistics agency said Wednesday. That marked a pickup from the 0.3% growth recorded in the final quarter of last year, but was a slightly weaker outcome than the 0.5% rate forecast by many economists.
        On an annualized basis, the economy grew 1.6%.
        Eurostat didn't provide a breakdown of the output figures, but national data releases indicate growth was driven by a pickup in household consumption, and a lesser rise in investment. Trade may have been a drag on growth, suggesting the euro's weakness hasn't delivered the hoped-for boost to growth, and that weaker oil prices are proving more supportive.
        The worry for policy makers is that oil prices are recovering, and that the boost to growth from higher disposable incomes may be fading, raising doubts about the future strength of the pickup.
        The Stoxx Europe 600 index was up 1.0% in early trade, while the euro gave up early gains to fall 0.1% against the dollar to $1.1208.
        Germany's economy, the eurozone's largest, slowed more sharply than expected, recording growth of 0.3% compared with 0.7% in the previous period. But France and Italy both exceed expectations, growing 0.6% and 0.3% respectively, having stagnated in the previous period.
        French Finance Minister Michel Sapin struck an unusually confident tone Wednesday, saying he expected the French economy to grow at least 1% this year and 1.5% in 2016.
        However, he warned the first quarter was unlikely to reverse France's persistent double-digit jobless rate, and that the government must press ahead with politically difficult reforms.
        "We must not only take note of good news, we need to keep it up," Mr. Sapin told BFM TV.
        Figures released earlier from Spain showed its economy led the recovery with a 0.9% growth rate.
        The currency area's long slump has taken a toll on confidence. Businesses have grown accustomed to weak growth and are wary of investing as a result, while unemployment remains near record highs, making households reluctant to spend.
        The confrontation between Greece's new, leftist government and its German counterpart over the terms of its bailout is a more imminent threat to the currency area's revival. Although it has had little negative impact on other parts of the eurozone to date, a debt default by the Greek government, possibly followed by the nation's departure from the eurozone, would likely be very damaging to currency area as a whole.
        In Greece itself, the standoff appears to be having an impact on the economy, with GDP falling 0.2% in the first quarter, following a 0.4% decline in the final three months of last year.
        Finland also slipped back into recession, defined as two straight quarters of falling output. Other eurozone members to record contractions during the quarter were Lithuania and Estonia.
        Outside the eurozone, there was most positive news for the growth prospects of Central and Eastern Europe. Romania recorded the fastest expansion of those European nations that have released growth figures, with its economy expanding 1.6%. Bulgaria's economy also accelerated to record growth of 0.9%.
        "The data reinforce our view that central and south eastern Europe should perform well over the next few years, in spite of headwinds from Russia and the euro-zone," said William Jackson, an economist at Capital Economics.
        Write to Paul Hannon at paul.hannon@wsj.com and Stacy Meichtry at stacy.meichtry@wsj.com
        (END) Dow Jones Newswires

        May 13, 2015 06:06 ET (10:06 GMT)

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