Drag in euro zone recovery supports call for ECB action

Drag in euro zone recovery supports call for ECB action
European Central Bank (ECB) President Mario Draghi addresses a news conference following the ECB Governing Council meeting in Brussels May 8, 2014.

BRUSSELS - A slowdown in the euro zone's economic recovery in the first quarter was confirmed on Wednesday, likely reinforcing calls for bold action by the European Central Bank this week to fight low inflation and high unemployment.

The 18-nation bloc's economy expanded by just 0.2 per cent in the three months to March, the EU's statistics office Eurostat said, illustrating the fragility of the rebound.

Analysts surveyed by Reuters expected the 9.5 trillion euro economy to expand by 0.4 per cent on the quarter in the January to March period.

Euro zone inflation has been stuck in the European Central Bank's 'danger zone' of below 1 per cent since October and coupled with weak growth poses a risk for the recovery.

Growth in the first quarter rise was mainly due to Germany, which compensated the stagnation in France and the shrinking output in Italy, the Netherlands, Portugal and Finland.

The quarterly rise was driven mainly by change in inventories, along with domestic and government consumption and exports. Imports did little to help the economy.

When compared with the same period of last year, the economy grew by 0.9 per cent, its second consecutive annual expansion after a 0.5 per cent increase in the last quarter of 2013.

Germany, the euro zone's largest economy, grew by a sound 0.8 per cent in the first quarter, with economists expecting pace of the expansion to slow in the coming months.

ECB policymakers have flagged a policy move for their meeting on Thursday and the bank's president, Mario Draghi, said last week the ECB was well equipped to get inflation back to its target - just below 2 per cent.

Separately, Eurostat data showed that industrial producer prices, a proxy for consumer price inflation, fell as expected both on the month and year on year in April.

Prices at factory gates in the euro zone slid 0.1 per cent on the month in April after a 0.2 per cent drop in March, showing the fourth consecutive monthly decline in a row.

Out of the bloc's five largest economies, Germany, France, Italy, Spain and the Netherlands, it was only Madrid seeing prices going up month-on-month by 0.2 per cent.

When compared with the same period last year, producer prices fell by 1.2 per cent in April, slowing from a 1.6 per cent drop in March.

 

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