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Eurozone growth beats expectations as Italy exits recession

Brussels

THE eurozone economy expanded by a better than forecast 0.4 per cent in the first quarter of 2019, official data showed on Tuesday, with Italy breaking free of a recession.

The reassuring announcement was a break from a series of worrying economic figures for Europe that showed a lacklustre economy beset by looming political risks such as Brexit and weaker global growth.

The figure slightly exceeded the expectations of analysts interviewed by data company Factset who had forecast 0.3 per cent growth.

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At an annual rate, growth in the 19 countries that use the euro was 1.2 per cent, the same result as in the previous quarter, according to the first estimate of the European statistics agency.

Analysts warned, however, that the uptick in eurozone growth would not last.

"The continued weakening of the timelier survey indicators suggests that the pick-up in eurozone GDP growth will not be sustained," said Jack Allen of Capital Economics. "We still think that the economy will grow more slowly in the second quarter and expand by less than most forecasters expect in 2019 as a whole."

The good news was dominated by Italy, where the economy returned to growth in the first quarter after a half-year of contraction. The data should bring some relief to Italy's populist-led government, which is struggling to hit ambitious growth targets necessary to deliver cost-cutting commitments to Brussels.

The Italian economy expanded by 0.2 per cent in the three months to March, escaping from two quarters of recession, the Istat agency said.

That contraction had put pressure on the government in the eurozone's third largest economy, which took power in June on the back of big-spending electoral promises.

"The bottom line is that we should cheer today's quite decent growth numbers, although we should not be carried away. It is still early days," said Marco Valli of Unicredit in Milan.

And, while Germany's growth report will not be issued for a couple of weeks, analysts said Tuesday's data indicated that recovery was in store for Europe's biggest economy. "By and large, the necessary conditions for an industrial turnaround later this year are falling into place," said Florian Hense of Berenberg bank in Germany.

"Over the past few weeks, US-China trade tensions have eased, news from China have suggested the Chinese stimulus may have started to work and the risk of an immediate hard Brexit has receded," he said.

Eurozone unemployment meanwhile dropped to 7.7 per cent in March, down from 7.8 per cent in February and from 8.5 per cent in March 2018. This is the lowest rate recorded in the euro area since September 2008. "We can say that calls for a eurozone recession were certainly premature," said Peter Vanden Houte, Chief Economist at ING.

"Declining unemployment and gradually rising wages are supporting household consumption, while easy financing conditions remain in place," he said.

Unemployment in the euro area has fallen steadily since September 2016, when it dropped below the symbolic threshold of 10 percent. It is now close to the average rate before the 2007 to 2008 financial crisis, when it stood at 7.5 per cent. AFP