The Eurozone economy registered only faint growth in the first quarter, according to a preliminary estimate released on Thursday. This figure offers the initial snapshot of economic activity since the eruption of the Iran conflict earlier this year. Eurostat reported that the gross domestic product across the 21-country currency area rose by a mere 0.1% quarter-on-quarter in the three months to March. This flash reading notably lagged both economists’ forecasts and the pace recorded in the preceding quarter, each anticipated at 0.2%.
The energy-importing Eurozone is particularly exposed among advanced economies to potential disruptions in oil, gas, and other vital shipments via the Strait of Hormuz, which commenced in late February. This subdued economic backdrop is further exacerbated by a series of recent surveys pointing to a continued slowdown. Business sentiment has weakened, service sector performance has deteriorated, corporate profits are falling, and exports remain impacted by tariffs, while financial institutions signal tighter credit conditions across the bloc.
These challenging economic circumstances significantly complicate the European Central Bank’s (ECB) response to an emerging, energy-driven rise in inflation. The ECB is widely expected to maintain its current interest rates on Thursday as its governing council convenes. However, financial markets are already pricing in three to four rate increases over the course of the coming year, reflecting anticipation of future policy adjustments to combat inflationary pressures.
