In the first quarter of 2024, Europe’s economy showed a slight improvement, with a 0.3% growth compared to the previous quarter as inflation pressure on consumers began to ease and the German economy, the largest in Europe, showed signs of modest growth. Despite this progress, challenges such as high interest rates from the European Central Bank continued to pose a challenge by increasing the cost of credit for businesses and consumers.
The eurozone, consisting of 20 countries, experienced its strongest performance since the third quarter of 2022, a significant improvement from the shrinkage experienced in the last two quarters of 2023. However, record high inflation nearing the 2% target set by the European Central Bank has led to speculations that the central bank might reduce its benchmark rate from the current record high of 4% in June.
Inflation dropping to 2.4% in April was an important factor that helped ease challenges caused by high energy price spikes due to disruptions in natural gas supplies from Russia. While Germany saw a positive sign with a 0.2% growth in Q1 after contracting by 0.5% in Q4 last year, concerns about long-term issues such as bureaucratic obstacles and insufficient infrastructure investment continue to be significant challenges for this country’s economy.
Other eurozone economies like France and Spain also showed some growth in Q1 with Ireland being a standout performer with a gain of 1.1%, driven by multinational corporations headquartered there. Despite these positive signs, structural weaknesses are expected to limit economic rebound pace in these countries’ near future.
