Economic Recovery in the Eurozone Takes Hold

Today gross domestic product (GDP) figures for the Eurozone’s first quarter were announced.  Data show that compared with the same period last year the Eurozone economy grew 2.5%, and compared to the fourth quarter 2010, grew 0.8%.  These results compare to consensus expectations by economists of 2.2% and 0.6%.

Analysis: European economic growth has lagged the growth of the United States for many, many years.  In fact, even in periods of global economic expansion the European economy sometimes barely grows at all.  So that the European economy grew by an amount that could be rounded up to 3.0% – a baseline economic growth for the United States – is an indication that the Great Recession’s hangover effects are finally ending in Europe.

Given the size of the European economy this is incredibly good news for the strengthening of the foundations for the global economy.  Because globalization and interlocking economies are truly a reality in the First and Second Worlds now, you want each participant to be on firm footing.

Not surprisingly, the two economies that logged the strongest growth were Germany and France.  I have written about the increasing differences of the haves and have nots in Europe.  Without rehashing that story, let me provide the most scant of details: the EU works primarily for the bigger economies by created a common currency and a free-trade zone it ensures that the exporting economies, Germany and France, have open markets for their goods that are very close to home.  If you aren’t an exporter, and instead are an importer, this isn’t such a great arrangement.  One would expect that this would create economic, and ultimately, political tensions.  And it has.

Portugal, which going through a sovereign debt crisis, saw its economy shrink 0.7% compared with the fourth quarter.  But importantly, Greece, which is going through a similar crisis, saw its economy grow 0.8%.  This is good news for those who hope that Greece is able to partially solve its problems through economic growth.

Lastly, the European Central Bank has already raised interest rates this year to offset the inflationary effects of a growing economy.  Given today’s results it would seem logical for them to raise rates again.  This has the tendency to strengthen a currency relative to all others.  In other words, we might see the dollar weaken.

Importance grade: 9; the most important news here is that one of the world’s largest economies has regained its health and is actually logging numbers not seen since four years ago.  Cheers!

Jason