Euro zone GDP shrinks less than expected in Q1, April inflation rises

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The euro zone economy shrank less than expected in the first three months of the year, preliminary data showed on Friday, while headline inflation picked up as expected on a surge in energy prices.

The European Union’s statistics office Eurostat said gross domestic product in the 19 countries sharing the euro contracted 0.6% quarter-on-quarter for a 1.8% year-on-year fall.

This put the single currency area in a technical recession after a 0.7% quarterly GDP fall in the last quarter of 2020. Economists polled by Reuters had expected a 0.8% quarterly and a 2.0% annual decline.

The euro zone’s first quarter contraction was mainly caused by a 1.7% quarterly slump in its biggest economy Germany, though mitigated by 0.4% quarterly growth in second biggest France.

Separately, Eurostat estimated euro zone consumer prices rose 0.6% month-on-month in April for a 1.6% year-on-year gain, as expected by economists polled by Reuters.

The rise was mainly caused by a 10.3% year-on-year surge in energy prices, which offset the 0.4% year-on-year fall in the costs of unprocessed food.

Without these two most volatile components, or what the European Central Bank calls core inflation, prices rose 0.5% month-on-month for a 0.8% year-on-year increase, a deceleration from the 1.0% year-on-year core inflation rate the month before.

The core inflation drop reinforces calls by European Central Bank doves to maintain the stimulus to the economy and hold off on tapering the pandemic bond purchases until the growth rebound fully materialises.

Eurostat also said that euro zone unemployment fell in March to 8.1% of the workforce, or to 13.166 million people, from a downwardly revised 8.2% in February or 13.375 million people, defying expectations of a rise to 8.3%.

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