Euro zone recovery falters as growth fails to match forecasts

The euro zone’s fragile economic recovery has suffered a setback with new figures showing weaker-than-expected growth.

The European Union’s statistics office, Eurostat, estimated that the economy of the 18 states sharing the euro expanded by only 0.2 per cent during the first three months of 2014.

Economists and forecasters had expected growth of 0.4 per cent.

Eurostat also revised down the economic growth rate for the final quarter of 2013 to 0.2 per cent from 0.3 per cent.

A pick-up in growth across the euro zone is seen as crucial for Ireland’s economic recovery.

In its latest quarterly commentary, the Economic and Social Research Institute cautioned that its positive outlook for Ireland was heavily dependent on recovery in the euro area.

While German expansion doubled to 0.8 per cent, that was not enough to offset renewed weakness across the region, including a 0 per cent reading in France and 0.7 drop in Portugal, blamed on weak consumer spending and business investment.

Dutch GDP fell 1.4 per cent in the first quarter, the sharpest contraction in the euro area, the figures showed, while the Italian and Finnish economies shrank 0.1 per cent and 0.4 per cent, respectively.

The euro zone is continuing to struggle with the legacy of the debt crisis. The unemployment rate was 11.8 per cent for a fourth month in March, near the all-time high of 12 per cent last year.

In a separate report, Eurostat confirmed the annual inflation rate remains locked down at 0.7 per cent in April.

The poor figures adds pressure on the European Central Bank to deliver stimulus measures next month in its battle against weak inflation and anaemic output.

ECB president Mario Draghi primed investors last week for further stimulus in June, saying the 24-member governing council is “comfortable with acting” next month.

With the euro area’s recovery from a record-long recession still fragile, officials are battling to revive price growth, with the inflation rate at less than half the ECB’s target.

“The recovery is still more or less in train in most countries, but the headline number is disappointing and the horror show was the Dutch number,” said Richard Barwell, an economist at Royal Bank of Scotland Group in London.

“We think the ECB is going to act in June, and we think it will be a package of measures.”

Even in the euro- zone powerhouse, Germany, there are signs of a potential slowdown in the second quarter.

The ZEW Centre for European Economic Research in Mannheim, which aims to predict economic developments six months in advance, said this week its index of investor expectations slid for a fifth month in May to the lowest since January 2013.

The Bundesbank has warned that while the economy shows an upward trend, growth will slow "noticeably" in the three months through June. The euro-area recovery is "proceeding at a slow pace and it still remains fairly modest," Draghi said last week in Brussels after the ECB left its benchmark rate at 0.25 percent and its deposit rate at zero. "There is consensus about being dissatisfied with the projected path of inflation."