Eurozone economy finally reaches pre-crisis levels

The eurozone's economy grew far beyond expectations in the first quarter of 2016, finally surpassing pre-crisis levels after eight years, as cheap oil and credit made itself felt.

Inflation in Europe however remained very low and a source of concern with the threat of long term damage caused by falling prices weighing on the economy.

The Eurostat statistics agency said growth in the eurozone accelerated in January to March, to 0.6 percent.

This expansion beat expectations for 0.4 percent growth and was double the level posted in the two previous quarters, putting the eurozone on course to grow by 1.6 percent year-on-year.

The recovery in the 19-nation single currency area, for years mired in a debt crisis and low growth, contrasts with disappointing figures in the United States, which disappointed analysts with an annual rate of growth of just 0.5 percent in the first quarter of this year.

Analysts said the jump in eurozone growth meant the benefits of cheap oil and low borrowing rates were finally making their way to consumers.

"Good news from the eurozone: One by one, the pieces are falling into place," said Holger Schmieding, of Berenberg Bank. 

"Despite the serious market turbulence in January and February, the eurozone economy started rather well into 2016," he said.

In further positive news, eurozone unemployment in March fell to 10.2 percent, its lowest level since 2011, Eurostat said."The European Central Bank will certainly be encouraged by the marked first quarter pick-up in eurozone GDP growth, and will no doubt argue that it shows its monetary policy is working," said Howard Archer, of IHS Global Insight.

The ECB has slashed interest rates to zero percent, beefed up its controversial bond-buying and made vast amounts of cheap loans available to banks in a bid to jumpstart inflation and boost the economy.

- Sharp declines -

On the downside for the ECB, eurozone inflation in April fell back into negative territory, data also showed.

The renewed bout of deflation will feed into accusations that the ECB measures to boost prices are not working.

Eurostat said inflation in April was negative 0.2 percent, compared with a revised zero percent in March. The eurozone was previously at the negative level in February.

Analysts surveyed by Factset data research company had projected inflation of zero percent. 

Fighting deflation -- a persistent and debilitating decline in prices that weighs on the economy -- has been the ECB's top priority.But the ECB has received biting criticism in Germany for sparking the rise of political anxiety and populism over the state of the economy.

German savers in particular are angry that the ECB policies are eroding their earnings.

"Drilling down into the detail it's not hard to see where most of that decline (in prices) came from with sharp declines in energy prices contributing to all of the decline," said Michael Hewson, of CMC Markets in London.

"Given the surprise jump in the eurozone GDP numbers it would seem that energy prices... are (also) acting as a fiscal stimulus and helping to support the recovery," he said.

Eurostat did not break down the growth numbers by countries, but official data in France on Friday revealed better-than-expected 0.5 percent growth for the first quarter of this year.

Spain also posted a solid reading of 0.8 percent for the quarter, despite an ongoing political crisis.

Overall, the eurozone economy stood at 2.48 trillion euros at the end of the quarter, Eurostat said. 

This exceeded the pre-crisis high of 2.47 trillion euros reached in the first quarter of 2008.

Source :AFP