Euro zone first-quarter growth disappoints, puts pressure on ECB to act

Thu May 15, 2014 9:55am EDT
 
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By Martin Santa and Annika Breidthardt

BRUSSELS/BERLIN (Reuters) - The euro zone economy grew much less than expected at the start of the year and inflation remained locked in the 'danger zone' below 1 percent, increasing pressure on the European Central Bank to ease monetary policy at its next meeting in June.

The 9.5 trillion euro economy expanded only 0.2 percent quarter-on-quarter in the first three months of 2014, the same as the downwardly revised rate in the last quarter of 2013, while economists had expected 0.4 percent growth.

The first quarter figure stayed positive mainly thanks to strong growth in the biggest economy Germany, which compensated for stagnation in France and shrinking output in Italy, the Netherlands, Portugal and Finland.

"Today's figure is a major disappointment, as it suggests that the euro zone is still far away from reaching the escape velocity required for a sustainable recovery," said Peter Vanden Houte, chief euro zone economist with ING.

With growth so weak and consumer price growth well below the ECB target, the bank is preparing a package of measures for its June meeting, including cuts in all its interest rates and steps to fight the risks of deflation.

"The package...the ECB appears to be preparing is welcome... but the overall steps are likely to be too small to make a real difference," said Nick Kounis, economist at ABN AMRO.

"More aggressive easing than the ECB currently seems to be considering would help from that perspective," he added.

German quarterly growth of 0.8 percent marginally exceeded forecasts and was double the pace at the end of 2013. The zero growth in France was a disappointment compared with expectations of 0.2 percent growth.   Continued...

 
A worker controls the cast at a blast furnace of German steel manufacturer Salzgitter AG in Salzgitter March 24, 2010. REUTERS/Christian Charisius