Euro zone rebounds from recession

The news: The euro zone economy rebounded in the first quarter from a mild recession as Germany returned to growth and expansion accelerated elsewhere.

The numbers: Gross domestic product in the 20-country bloc increased by 0.3% quarter-on-quarter in the January-March period and 0.5% year-on-year, official data showed, compared with market expectations for a 0.2% expansion for both. Euro zone inflation also steadied at 2.4% in April.

The context: The December quarter GDP figure was also revised down to a negative 0.1% from a previous 0.0%, meaning the euro zone was in a technical recession in the second half of 2023. GDP shrank by 0.1% in the third quarter. Germany, the euro zone's largest economy, returned to growth in the first quarter with a bigger than expected 0.2% expansion from the previous quarter due to exports and construction investment, which were boosted by unusually mild winter weather. The figures reflect general expectations of a slow recovery in the euro zone with the IMF forecasting earlier this month that the bloc's GDP would rise by 0.8% this year.

A crucial indicator of underlying price pressures slowed, solidifying the case for the European Central Bank to cut interest rates at its meeting on June 6. Bank of France governor and ECB policymaker Francois Villeroy de Galhau said the data boosted confidence that inflation would return to the ECB's 2% target by next year and so the bank should be able to start cutting rates in June.