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The euro zone experienced unexpected economic growth of 0.4% in the first quarter, as reported by Eurostat on Wednesday. This figure stands in contrast to earlier predictions by economists, who anticipated a modest 0.2% growth during the first three months of the year, following a revised growth rate of 0.2% in the previous quarter of 2024.
Newly released figures indicated that Germany, the largest economy in Europe, witnessed a GDP increase of 0.2% in the same timeframe, while France recorded a growth of 0.1% during the quarter.
Counter to broader trends, smaller and southern European nations outperformed expectations, with both Spain and Lithuania achieving a 0.6% increase in GDP, and Italy experiencing a 0.3% growth. Ireland reported a remarkable expansion of 3.2% for the quarter, a figure influenced by its considerable number of multinational corporations.
The economic performance of the euro zone has remained lackluster throughout much of 2023 and 2024. In an attempt to encourage growth, the European Central Bank (ECB) has been systematically lowering interest rates, bringing the deposit facility rate down to 2.25% earlier this month, a significant decrease from 4% in mid-2023.
In March, the ECB projected a growth rate of 0.9% for the euro zone in 2025, slightly less optimistic than earlier estimates. Updated projections are set to be released in June. Additionally, central bank officials hinted to CNBC that these forecasts would play a pivotal role in future rate decisions.
During discussions at the International Monetary Fund and World Bank Spring meetings, policymakers and economists alike recognized the U.S. tariff policies as a central concern affecting growth throughout the euro zone.
ECB President Christine Lagarde remarked that while the “disinflationary process is progressing towards completion,” there remain significant shocks to consider that could hinder GDP growth.
The European Union, encompassing euro zone nations, is currently subjected to a 20% tariff imposed by the U.S., which has temporarily suspended some of these measures until July to facilitate negotiations. The EU has also opted to delay its own retaliatory tariffs for the moment. Moreover, additional tariffs exist on steel, aluminum, and automobiles within the bloc.
Recent data published on Tuesday unveiled a decline in economic sentiment within the euro area for April, marking the lowest level since December 2024.
Although growth has been modest, inflation in the euro zone has approached the ECB’s goal of 2%, recorded at 2.2% for March. The most recent updates on inflation are anticipated to be released later this week.
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